Flying the merging skies

The consolidation in the skies continues with the merger of American Airlines and US Airways Group. That will create the world’s biggest airline in terms of passenger traffic and with a combined equity value of 8.25 billion euros ($11 billion). US Airways Chief Executive Doug Parker – a big advocate of industry consolidation – started pushing for this deal a year ago. The two airlines together had turnover of 29 billion euros last year. Their combined fleet is 1,500 planes, serving 336 destinations in 56 countries with 100,000 employees. Analyst reaction was lukewarm. “Wall Street has been enamoured of consolidation from an industry perspective because it will help control capacity,” said George Hamlin, president of Hamlin Transportation Consulting. “But I’m not sure being large for its own sake is going to guarantee success. A lot of pieces need to be put together. A lot of pieces will need to be shed.” Savings for airlines, not passengers Rick Seaney, boss of farecompare.com, said a merger may make economic sense, but passengers won’t get much out of it: “In airline mergers, the people that benefit the most are Wall Street, to be honest, consumers end up paying more for airline tickets in general, they have less convenience because typically during mergers there’s cutbacks in flights and schedules.” This is the fourth major merger in the US airline industry in less than five years and it means the survivors will be able to put up fares as yet another competitor is eliminated. Unions for the carriers’ pilots, flight attendants, and ground service workers have said they support the deal, the machinists union is holding out for the completion of work contract negotiations before backing it. The companies expect one-time transition costs of 900 million euros over the next three years with annual savings of 750 million euros in 2015.