How the new American stacks up against its rivals
11/23/2013 12:00 AM
11/25/2013 8:38 AM
It has been five years since American Airlines could say, “We’re No. 1.”
But when its merger with US Airways closes, as early as next month, the Fort Worth-based airline can once again claim the top spot in the airline industry.
The new American will have more than $38 billion in annual revenue, 1,500 aircraft, 6,500 daily flights and more than 100,000 employees, making it bigger than rivals United Airlines and Delta Air Lines, which currently occupy the top two positions.
Executives at the new American say its added size will help it compete for lucrative business travelers and provide more connections to more destinations for all travelers.
“This makes us a very powerful global competitor, not just with United and Delta but also with all the growing international airlines around the world,” American’s Chief Executive Tom Horton said two weeks ago after the carrier settled its antitrust lawsuit with the Justice Department. “We think the U.S. should have the world’s leading airline and that’s what’s been created here.”
Being the biggest, however, may not have the same cachet in the airline business that it used to, industry analysts say. The top three airlines are very close in revenue and network size, all serving over 300 destinations worldwide.
Each carrier will have its own geographic strengths, and product and service offerings. But in reality, all three airlines will be able to take a customer from one destination to another, whether it’s on their own planes or an alliance partner’s flights, said Henry Harteveldt, airline analyst at Hudson Crossing.
“It is not a matter of being the largest airline,” Harteveldt said. “It’s a matter of how intelligent its leadership is in making the largest airline the most relevant.”
When American’s parent company, AMR Corp., filed for bankruptcy court protection in 2011, the carrier had lost market share on both coasts and cut flights out of Boston.
The merger with US Airways will create a combined network with more capacity in New York and Washington, D.C., even after the divestitures required by the settlement with the Justice Department.
“It has more of the top ten cities and more of the top premium markets as hubs within the United States,” Harteveldt said. “The potential to use both Chicago and Philadelphia as connecting gateways across the Atlantic and use New York for local traffic may help their business.”
With a larger domestic network, analysts say American executives will be able to focus on their hubs but also increase passenger traffic to international flights.
The Oneworld alliance, which American co-founded in 1998, will gain traffic as US Airways leaves the Star alliance early next year. And, analysts say, American’s strength in South America, particularly Brazil, will help boost business for the new American. China, however, remains a weak spot as the other two big alliances, Star and Sky Team, both have domestic Chinese carriers while Oneworld’s partnership with Cathay Pacific brings passengers mainly from Hong Kong and other south Asian cities.
“They are trying to extract corporate traveler surpluses and then feed that business to the international market where most of the growth has been and where I suspect most of the profit in the future will occur,” said aviation consultant Robert Mann.
Domestically, US Airways CEO Doug Parker, who will head the new American, has reiterated that the carrier plans to keep all of its hubs in New York, Philadelphia, Charlotte, Miami, Chicago, Dallas/Fort Worth, Phoenix and Los Angeles. As part of its antitrust settlement with state attorneys general, the new carrier promised to maintain service at its hubs for three years.
But that doesn’t keep analysts from wondering whether the new combined airline will reduce service at a hub or two, like Delta did at the former Northwest Airlines hub in Memphis.
“We all question whether at the end of the day there will be eight hubs standing,” said Bill Swelbar, an airline researcher at the Massachusetts Institute of Technology. “They need to get in and optimize their network, understand where the traffic flows and then ask themselves the question, ‘Do I need all eight or do I have some duplication of service that I can get rid of?’”
The business traveler
Crucial to the new American’s success will be the carrier’s ability to woo corporate travelers who spend more on last-minute airfares and are willing to purchase amenities like extra legroom or standby access.
There is some concern among corporate travelers that American, which has traditionally catered to business customers, may not invest in products and services since US Airways executives will be running the new airline. US Airways has a reputation of focusing more on on-time performance than in-flight comforts.
“They are going to have to up their game,” Harteveldt said. “Plastic cups in first class are not going to be acceptable on American.”
During its bankruptcy restructuring, American decided to add lie-flat seats to its first and business classes on international and transcontinental flights. It also unveiled a new brand and livery for the airline before the merger announcement.
Asked by an American employee at a town hall meeting two weeks ago if Parker planned to cut back on the new customer initiatives the carrier rolled out in 2013, he said the merger will continue these initiatives.
“We will build upon the work you’ve done and make sure we all are headed in the same direction,” Parker said, according to American. “I don’t see any significant changes to the work that’s being done today.”
As the new American takes flight, analysts say there will be a fight for passengers.
“I just do not believe that United, Delta and Southwest are going to take the new entity laying down,” Swelbar said.
Southwest, which is the largest domestic carrier, is preparing to add long-haul flights out of its home airport, Dallas Love Field, when the Wright Amendment restrictions expire late next year, giving American more competition in its backyard.
United has smoothed out some of its operational problems that occurred in 2012 as it integrated Continental Airlines.
But it is Delta that analysts say will give American formidable competition. Delta has already completed integrating Northwest Airlines from its 2008 merger and has aggressively added capacity in Seattle and Boston, where it believes it can boost traffic.
“Delta is an absolute machine,” Harteveldt said. “Delta has had good on-time performance and they have gone through all the challenges of the merger so they are a couple of years ahead of United and they are four or five years ahead of American.”
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