Harvard Business Review: Insights From The US Airways-American Airlines Merger

A Harvard Business Review podcast begins framing the discussion of the US Airways takeover of American Airlines in this insane fashion,

Leading firms through a merger is a complex, daunting, and emotionally charged undertaking. The stakes are sky-high, and careers and livelihoods often hang in the balance. But done well, the results can lead to a happy ending for all involved.

The discussion is over Harvard Business School professor David Fubini’s case study Merging American Airlines and US Airways. Parker spoke to Fubini’s class, maybe the professor was charmed a bit. He ends the interview suggesting “certainly Doug, in this case because he had been a former CEO, actually employed many of those approaches [that make for a successful top leader] really well.”

Indeed Parker managed to alienate customers, employees and shareholders yet somehow managed to survive. Here by the way is the story Parker tells himself about his own legacy and the merger.

Would you believe that fleet migration as part of the merger was only just completed in May?

Insights About The American Airlines – US Airways Merger

How US Airways management brought the focus on exact on-time departures over other considerations to the airline,

[T]he culture of running the airlines were quite different, as we were just already indicating. American Airlines was very focused on customer service and its service to business travelers in particular. For example, it was quite famous for the fact that it allowed its captains to hold the plane, if indeed it felt it was appropriate to accommodate a business traveler or a set of travelers who might be coming in on an airline that had been delayed, and so therefore they would hold the plane. US Airways was, “No, we fly when it said we’re going to fly and not a minute later,” because their theory was that they ran such a tight network that a 10-minute delay at the beginning of the day would turn out to be a two-and-a-half-hour delay by the end of the day

US Airways leaders thought American was highly inefficient and made bad business decisions, but their route network gave the plenty of money that allowed them to make mistakes. More broadly, US Airways managers just thought they were smarter than American managers.

I recall immediately after merger close, on the inaugural flight of the new Airbus A321T aircraft with three cabins that would serve premium cross country routes, a legacy US Airways Vice President telling me that first class would quickly be dropped and made no sense for the plane. A couple of years later the Senior Vice President for Los Angeles (also legacy US Airways) told me she clamored for more first class seats to sell.

[T}he US Airways people would say, “Look at those American Airlines people. All they care about is wealthy business leaders who can afford their inefficiencies, and we have just got to fix this things.

…US Airways wanted to apply its approach to managing an airline to a broader airline.

Things Herr Professor Gets Wrong In The Interview

Fubini notes that every major airline went through bankruptcy before American. And while it’s true that American spent too long as an inevitable bankruptcy waiting to happen it’s not true that every major airline went first (or at all). Southwest Airlines, the largest carrier of domestic U.S. passengers, never went to the courts.

Claiming that Doug Parker “had been the CEO of US Airways for some time, actually, ever since they bought America West” (emphasis mine) gets things backwards, Parker became CEO of America West in September 2001 and acquired US Airways (with financing from a new co-brand credit card partner). Like US Airways-American, it was another case of the smaller airline taking over the larger one out of bankruptcy.

And in the interview Fubini imputes way too much importance to the story about letting employees pick the new American Airlines aircraft paint job.

American Airlines had these iconic silver airplanes, and they had decided to change what’s called the livery, which is the entire look of the airline. And they’d spent a lot of money actually developing the new look of the American Airlines.

And Doug Parker said, “Look, before we go ahead with this, let’s put this to a vote of the entire employee population.” And people are slightly aghast because they’d spent fortunes actually developing this new livery. But he said, “No, no, I want us to see if this is one airline. So I’m going to put it to a vote.” And of course the new airline livery was voted on positively, and that’s why every American Airlines plane now you see has this white look in a different, much more up-to-date logo.

BRIAN KENNY: I liked the silver, but that was just my opinion.

DAVID FUBINI: Well, I’m sorry. You would have been out-voted.

Parker told employees he was letting them decide on aircraft livery because the decision didn’t matter and the choice wasn’t ‘new or old, US Airways or American’ it was whether to keep the new American livery as it is or keep the new paint job but the old American Airlines tail which looked horrible. It was such a limited choice precisely for cost and not to do over the process.

While the results were close it was always expected that ‘keeping the new American Airlines livery’ would win because that’s something that American employees saw as theirs and there were more legacy American employees than legacy US Airways employees.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. USAir purchased Piedmont, which definitely focused on customer service. After that merger, some of Piedmont’s qualities remained, That was the merger that started the focus on efficiency over service. Although I stuck with the airline over 30 years, I miss the good old days.

  2. The only break I’ll give Parker is that merging fleets of dissimilar aircraft is a long, expensive, painful process. But it still shouldn’t have taken nearly this long to do it.

  3. Like anything, air transportation is, by its nature, far more than a single metric. As a guest/customer/client, I care about many elements — including everything from safety, to customer service, to FF program, to schedule, to IFE, to food service, to seat comfort, to price, to efficiency, to simple kindness, and more — which all combine to paint a picture. Pre-merger AA was my airline of choice, because the quality of the TOTAL product. Since the merger, they have given me almost no reason to choose them, so I almost never do. Delta, jetBlue (and recently United) offer a much better experience, and therefore get my cash.

  4. Timeline:

    2019 have yet another awful Paid J experience and finally become a free agent and have not flown AA since, all paid J/F flights.

    Customer Service and Soft/Hard experience matters!

  5. The change in the paint scheme came from the fact the that composite planes such as the 787 don’t have metal skins. So it was a logical sensible decision to change all the planes to a painted silver. You should know this.

  6. Anyone who knows an industry or story well will be disappointed by the way HBR tells the story. These professors don’t take the time to learn the details and in particular the history of the industry or firm. Also, HBR has taken money from Samsung etc to write fluff pieces on their “innovation strategy” and this often isn’t clearly disclosed. HBR has published some gems over the years but trade specific publications and analysts are better.

  7. @TM but the question kf WHICH livery to use, once planes were being repainted, was at issue. The reason for the painting (a whole separate question of whether the composite aircraft get their own similar livery or you repaont everything) was not relevant.

  8. Merging with USAir was the worst thing to happen to AA. AA provided service, USAir that’s not even in their comprehension.
    Flew b/c from BUD-PHL, no f/c cabin (pre pandemic & LUS crew) and after the ice cream dishes were picked up, I was never asked if I’d like anything or checked on for the next 8.5 hours. Then prior to landing I start looking for the pre-landing service, at least a cup of coffee. Nothin, zilch. I look around and the woman behind me catches my eye. She says, They’re not going to do the service. Sure enough, captain comes on a couple minutes later and says, It’s too bumpy for the crew to do a service. (What bumps, talk about lazy!)
    Coach may get skipped but not premium cabin. Unbelievable. Worst service ever. Definitely not the AA I was used to flying.

  9. Well, call me nostalgic but, the whole thing would have been significantly better if we turned back the clock and had Piedmont acquire Useless Air instead of the other way around. Just saying

  10. The livery vote was only for the tail… stripes or legacy AA logo. It had nothing to do with the body of the aircraft. The new branding and livery was in place and moving forward. Doug inherited it and the dissension over the change, he offered a vote on classic tail or new tail colors.

  11. Was this the same Harvard program under Fubini to declare the merger creating the Penn Central a great success (despite just 2 years later declaring bankruptcy)?

    Apparently, Fubini cannot contemplate how Parker and his team have enabled the former Northwest Orient to actually look good in comparison…

  12. Lousy case I’ll give it that

    But lAA and pmUA were two no easy answer situations to merge given their unions fleets and most hubs in multi airport metros like ORD DAL LAX SFO NYC WAS vs the smaller healthier network carriers.

    pmDL had a much better cost base, less union and didn’t have the high maintenance coastal business traveler to lose.

    NW was smaller, had fortress no competition hubs, and cleaned up its cost base at the same time as DL in bankruptcy.

    Once those two paired up the favorable execution answers for UA and AA dried up

  13. US buying AA..
    Was like KMART buying NORDSTROM

    It will never have the class that AA had during the BOB CRANDALL era.!!

  14. It should be noted that AA’s emphasis on customer service, and solid established reputation on quality, began to diminish before US came into the picture. AA’s focus on service was gradually replaced by self-entitled arrogance. US had nothing to do with this change in culture. By the time US took over the damage was already done.

  15. The merger was not successful! Parker is running the company into the ground. The company has no vision for its employees. While everyone on the outside thinks it was successful internally its a mess. Parker cares less about customer service and loyalty to its passengers. It has more canceled flights and leaves passengers stranded for days. The food service is really bad on it’s flights. They desperately need a new CEO with vision to take the company forward.

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