American Merger Update: What May Change for Travelers

Three latest developments in the ongoing American Airlines merger soap opera tend to move it along a bit:

• American and US Airways have signed the necessary paperwork to proceed with merger discussions, which is a procedural step; it’s not a commitment, but it’s certainly a boost.

• American has also signed similar paperwork with the parent company of British Airways, which has indicated interest in buying into American up to the 25 percent legal limit for foreign ownership of a U.S. airline.

• The bankruptcy judge ruled that American could unilaterally abrogate its existing agreement with pilots and impose—or at least attempt to impose—its own unilateral rules.

Taken together, these developments mean that the probability of a merger with US Airways is increasing, the merger is increasingly likely to be on American’s terms (not US Airways’), and British Airways may well take partial ownership of the merged company. Although a merger still isn’t a done deal, Wall Street wants it, and US Airways appears to be the only suitable and willing partner in the deal.

The post-merger outlook for you, as travelers, remains as we’ve said from the start:

• You won’t lose frequent-flyer miles or frequent-flyer status with either airline, and any advance reservations and ticket payments will remain intact.

• The combined airline will almost surely retain American’s membership in the Oneworld alliance, which may be a problem for US Airways flyers who currently take advantage of the superior earning and awards opportunities in the larger Star Alliance.

• The widespread code sharing between US Airways and United will probably come to an end.

• Recent developments tilt the balance toward more control of the resulting airline by the current American team, which might be good for consumers. Although the former America West/US Airways team clearly understands how to concoct a merger, it earns no better grade than a “C” for running an airline.

• A merger would result in an oligopoly of big three giant U.S. legacy carriers, and increased concentration seldom benefits consumers in any market. Robust independent airlines Alaska, Hawaiian, JetBlue, and Southwest, however, coupled with a half dozen niche lines, will likely continue to keep the lid on domestic fares.

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