When US Airways first started trolling around the American Airlines bankruptcy, they hoped to snatch it up cheaply. Since American has gotten labor agreements done with its various workforces (and even has had its pilots union send out a new contract with recommendation or a vote of approval), has gotten various other costs down, and has killed off several unprofitable routes, the airline has gotten much more expensive as a potential acquisition target.
US Airways initially saw likely equity split as 50-50 if it merged with the larger airline. Now US Airways is looking at 70% of a combined company going to American’s creditors, while some creditors see 80% as their negotiating position.
Regardless, this suggests a deal has become much more likely. Certainly American is not adamantly opposed, although any deal likely benefits current management more upon emerging from bankruptcy rather than during the bankruptcy process (although presumably a deal could compensate for this). Back in July American leaked the story that they were actually the first ones to broach the subject of a US Airways merger
As I relayed in writing about a potential merger between the two airlines back in July, one of my favorite (apocryphal) stories is about Winston Churchill asking a British socialite if she’d sleep with him for a million pounds sterling? She agrees. Then he asks if she’d consider it for 50 pence? She was appalled, “What kind of woman do you think I am?” and his reply? “We’ve already established that madam, now we’re just haggling over price.”
While they may not ultimately come to an agreement, it does appear as though they’ve begun haggling over price.
Apparently with the operational disaster that United has been since combining its reservation system with Continental back in March, Jeff Smisek relishes the idea of an American-US Airways merger. Since such mergers are incredibly costly and hard to do. I would be genuinely shocked if the benefits of merger aren’t far less than projected by an overeager Doug Parker of US Airways, and if the costs associated with that merger aren’t well more than anticipated, too.
But it all comes down to price, if American’s creditors were to receive enough of a share in the combined entity, they’d be better off with the merger, even if current US Airways shareholders are not. And my hypothesis has long been that Parker is much more interested in running the largest airline he possibly can (as evidenced by his indiscriminate past attempts to combine with not just American but also United and Delta), rather than looking out for the best interests of his current shareholders.
What is likely to happen to the American One World alliance in this merger?
American/US Airways would be a oneworld airline
Most importantly, what happens to my miles?? 😀
Sigh. Based on the trainwreck (at best) that the Continental-United merger has been, I’m not looking forward to an American-US Airways merger.
I still can’t see the synergy of the overlapping hubs between the two carriers.
I have always felt it was when and how not if for USAir/AA in the AA CH11 proceedings. I do fear the impact of the collapsing of the legacies from six (UAL, CO, DL, NW, US, AA) into three (UA, DL, AA) on the consumer, but on the flip side, there really is not room for any more to make any money, and hopefully they can build a sustainable business on the back of it that we can all ultimately benefit from
If I ran PHL, I’d be worried.
Ugh. USAir is shite.
While I usually agree with many of your points, Gary, this is one I will disagree with.
If anything, the fact that AA is beginning to get their labor relations back in order makes them less likely to merge with US, not more likely. In my opinion, Doug Parker is babbling nonstop about the benefits of a merger, but they are really his benefits, not combined benefits.
I think that US needs AA more than AA needs US, and I’m not totally convinced that AA and it’s creditors are as easily persuaded by DP’s sweet talking as others.
AA will come out of bankruptcy as a better, stronger airline. They don’t need a merger. Let US fend for itself.
What happens to not only my miles, but my status!
Cactus hasn’t fully merged with US and they want to contend with a third pilot and flt attendant labor groups?!? Worse this will most likely mean a departure from Star Alliance. BOO!
So I guess size DOES matter. What a shame.
I hate the prospect of losing my local hub. Non-stops most places I need from PHX come in handy on short trips. However, on the award front, since getting LH F is impossible, I’d settle for AA and BA F with my still large stash of miles. Leave *A awards to UA and Chase UR.
You won’t find many US Airways shareholders unhappy with Doug Parker. You will find them unhappy with the valuation of airlines, though.
Parker (along with President Scott Kirby and CFO Derek Kerr) are by far the most successful entrepreneurs in the USA airline industry. They’ve been building an empire out of basically nothing for more than a decade now. In any other business, they would have made their shareholders (and themselves) an incredible fortune. Just think of mediocre businesses such as Priceline. Instead, they make money and get stuck with an astonishingly low price to earnings ratio of 3!
I suspect though that their fortune may be in sight here. It’s not rocket science to see that the US airline industry has become a comfortable oligopoly. And with USA oil production rising at an astonishing rate, logic would suggest they won’t have to deal with forever spiking oil prices. I guess we’ll see. It’s always an interesting show in that business.
So… as an American Airlines cardholder/points holder and NOT a US Airways cardholder/points holder with a limited runway of AA credit cards on the horizon once I complete one more churn I think, is there a way to play this potential merger by thinking about US Air credit cards as potential AA miles? Any obvious play here?
There is no reason why an airline should leave a top-15 US metropolitan area like PHX, unless they are just a complete failure as an airline. If AA can’t make money serving a city of 4 million people, they deserve to be liquidated. Yeah, WN, so what? UA and US haven’t folded- why should the combined AA/US entity fold?
There’s also no reason why PHX and LAX can’t work on an inside/outside basis like SLC/LAX and DEN/LAX work for DL and UA, respectively- one’s an intra-Mountain West hub that handles domestic feed + O/D, one does TPAC gateway and O/D from Greater LA.
Gary,
Any speculation as to which carrier’s traditions would survive? name? (I think AA has a stronger brand), FF policies (I’ll flip if I lose lifetime Plat), etc.?
I too would flip if I lost lifetime Plat
It would be a death walk as I would fly United the rest of my life in principal. I hate United less then US Scare
If US Scare runs the show our miles will be worthless in the Domestic US and their own metal on international flights.US Air Sucks up their with Delta big time when it comes to running a fair program.
I can just imagine the kind words in Garys blog when Parker announces the enhancements of dropping Lifetime Plat lol. I seriously doubt that will happen
Devaluation of our miles is certain if the awful Parker dog and pony show is in place
Gary, I enjoy when you guess right most of the time – in this case I am betting against you and wish you to be 100% incorrect regarding the USAir/AA merger/takeover. USAir is Greyhound with wings. USAir and Spirit Airlines are a perfect match.
IS NEVER going to happen. DOJ just won’t allow it, maybe AA and Alaska, but further consolidation among the top is bad for consumers.
I still see it like ATT/TMobile, it was bad for consumers and competition, and the DOJ knew it, but no one is saying BOO about Sprint/US Cellular.
If US wants another airline they should look at Frontier or Hawaiian.
@jfhscott – American name/brand. Oneworld alliance. They start with American’s platform more or less and then US Airways-ize it. Can’t imagine they take away lifetime status.
@D Wonder & @ Dave
When was the last time you guys flew US? I understand the fear of losing your AA lifetime status but c’mon, “US Scare” and “greyhound with wings”? Plus comparing Dividend Miles with SkyPesos is nothing short of ridiculous….your bias is showing.
Try the new US business class, its the same hard product Cathay Pacific decided to use. Leaps and bounds better than anything on AA or any other domestic airline.
Even domestically they are solid, ample upgrades for elites and a great on-time percentage which are the two most important factors for me personally.
GS — The real question is will there be a reduction in the US miles to AA miles?
Taylor – you need to look at the metal that AA has vs US has. AA metal is old and out of date. They have 0- 747 47-777 and they still have 188 MD planes.
ArizonaGuy — BA rewards require fuel surcharges!
Glenn – when US and AmerWest merged then got a new bank (Barclay) as a new credit card company so we did the churn all over again.
AA/US would go to OneWorld but will that be better now then StarAlliance with the Qartar coming in? Hope so, because *A has always done good by me on F & B for redemption to Europe.
If US does merge into AA and goes into OneWorld then OneWorld needs to up their alliance like *A does and get better Europe redems with out FUEL fees from BA!!! Also OneWorlds website is not as good as *A