Positive outlook is key in sorting out American/US Airways merger
When Stephen Stills wrote the popular 1970 single “Love the One You’re With,” it proved to be a popular refrain of the era providing advice that inspired the tagline: “If you can’t be with the one you love, love the one you’re with.” Few probably ever thought the tune could one day serve as a mantra of the U.S. airline industry.
The recently proposed marriage of US Airways and American Airlines reminds us that in mergers, as in love, there is a match for everyone. In this case, however, the combination is poised to become the largest airline couple in the world.
Notwithstanding American management’s initial opposition to merging with US Airways, its workers, owners and creditors now feel that Doug Parker’s US Airways is the best partner for American Airlines, and Parker’s management team will run the combined entity going forward. The new airline will be gigantic with 6,700 daily flights serving 336 destinations in 56 countries.
It’s no surprise that as in past mergers, this one creates the usual passenger concerns about how existing frequent flier accounts will be treated, the effects on air service and, of course, the ultimate influence on airfares. Airfreight shippers have similar concerns.
Past experience is not a factor since both airlines have long held extensive air cargo roles. While not as large as American, US Airways has always been a primarily domestic freight hauler with a relatively substantial wide-body hub serving several European destinations from Philadelphia.
American Airlines was one of the first airmail carriers and subsequently flew air freighters nightly across the country. Today, its large wide-body fleet flies cargo from several U.S. hubs to worldwide destinations throughout Europe, Asia and Latin America. The carrier understands the airfreight business and values freight forwarders as partners.
Post deregulation years have not been kind to any U.S. legacy airline, including US Airways and American. In 2012, the two carriers alone experienced a loss of $1.2 billion. But as rival Delta earned a profit of $1 billion, management teams at both carriers knew they had to capture substantial ground before returning to profitability.
From the airfreight forwarder perspective, many of the concerns from previous mergers of Northwest and Delta, United and Continental, and AirTran and Southwest remain. These deal with the effect on rates, scheduling frequency and cities served. Mergers are about synergy, and if both carriers are running parallel fights at the same time to one city, chances are that the new carrier will only fly one plane, maybe of a different size to that destination. This could result in less cargo space and higher prices to ship boxes.
But despite the normal merger concerns, many are seeing the combination of these carriers as a way to help stabilize the industry. No customer enjoys doing business with a company that routinely loses money. In the airline industry, we have seen financial hardship manifest itself in less reliable equipment and poor service quality. Hopefully, the merger of American Airlines and US Airways and their recent competitors will result in a stronger U.S. airline industry.
Of course, the merger must still pass regulatory scrutiny, but there should be no major issues, especially in light of the government-approved pairings of other airlines in recent years. Of the 900 destinations served by both carriers, only 12 routes overlap. Should the government authorities ask the merged carrier for concessions due to market share size concerns, slots at major airports including Reagan Washington National Airport can easily be spun off and quickly grabbed by smaller carriers willing to buy them.
Forwarders also know that when it comes to domestic U.S. shipping, airlines play less of a role than in past years, as trucks have become a formidable competitor. This is probably the biggest factor keeping competition in check on shipments transiting the United States. When it comes to international shipping, airfreight forwarders have a much larger selection of carriers from which to choose, so fewer airlines in the United States will not make much of a difference in keeping international service and rates stable.