13 from 2013: Merger complete, American faces long integration
12/29/2013 12:00 AM
12/29/2013 6:58 PM
After a December wedding for American Airlines and US Airways, the honeymoon is over for the new American Airlines Group.
The airlines, which announced their intent to merge on Valentine’s Day this year, closed the deal Dec. 9 with silver bells ringing in celebration at American’s Fort Worth headquarters.
Now comes the difficult task of integrating the two airlines with 100,000 employees and 1,500 aircraft into one, a long and complicated process likely to take two years.
American’s new CEO, Doug Parker, who previously ran US Airways, said the goal is to restore American to its spot atop the industry.
“Being the greatest airline in the world means that we want to be the airline that customers want to fly, where employees want to work and where investors want to invest their dollars,” Parker told employees at the headquarters celebration this month.
The next year will be spent choosing which technology systems to use, instituting employee work rules and deciding which customer policies will remain in place.
For example, American allows pets to fly in the cargo hold while US Airways does not. American also allows unaccompanied minor children to have connecting flights while US Airways will only allow unaccompanied children to fly direct.
“All those different policies, whether it’s carry-on bags or boarding announcements or premium service or clubs, all those kinds of things we have to make decisions on,” American’s Chief Operating Officer Robert Isom said.
Travelers will start seeing changes in January.
Engagement almost derailed
When American and US Airways announced the merger in February, executives knew that it needed approval from a bankruptcy judge.
American, which had been restructuring its troubled finances under Bankruptcy Court protection since November 2011, had several legal hurdles to clear, including persuading creditors to vote for the deal.
What the airlines did not expect was strong opposition from the U.S. government. Three previous airline mergers — Delta/Northwest, United/Continental and Southwest/Airtran — had been approved with no antitrust lawsuits filed by the Justice Department.
But in August, just a few weeks before the airlines hoped to close the deal, the department filed an antitrust complaint to stop the merger, saying it was anti-competitive and would harm consumers.
A trial was set for Thanksgiving week with dozens of expert witnesses scheduled to testify on how the deal would affect the U.S. travel market.
Then, before it started, the two sides settled in early November with American agreeing to divest takeoff and landing slots at New York LaGuardia Airport and Washington D.C.’s Reagan National Airport, as well as gates at several other airports.
“We could have either settled or taken our chances in court and we chose to settle and get it done,” Parker said.
The settlement was approved by U.S. Bankruptcy Judge Sean Lane, and American exited bankruptcy Dec. 9 and closed its merger with US Airways. The new company, American Airlines Group, began trading on the Nasdaq exchange that day under the ticker symbol AAL.
A busy 2014 ahead
Since the airlines joined merged, customers have yet to see many changes. Executives decided to wait until after the busy holiday season before implementing anything new.
“The silver lining to the DOJ lawsuit was that it allowed us to get further advanced on integrating more from a customer perspective,” said American’s new president, Scott Kirby. “We’ll now have a more automated integration for customers closer to the close of the merger than we would have before because there wasn’t going to be time to get it done.”
Starting Jan. 7, frequent fliers in the AAdvantage and Dividend Miles programs will have reciprocity, meaning customers can earn and use miles on either American or US Airways flights regardless of which program they belong to. The new carrier also expects that elite frequent fliers will have access to both Admirals Clubs and US Airways Clubs by spring.
And by the end of the first quarter, the company expects to offer code sharing on flights for both airlines, allowing travelers to buy a ticket for an American flight using the US Airways website and vice versa. US Airways will also leave United’s Star Alliance and join American’s oneworld group of international carriers.
“What we’re trying to do is come up with a very well-thought-out, thoroughly examined list of initiatives that we will be addressing over time,” Isom said.
Although the executive team signed transitional agreements with some of the airlines’ labor groups, American will have to deal with quite a few union issues next year.
Pilots, flight attendants, mechanics and other groups will have to decide which union they want to represent them in contract negotiations with the new company. The International Association of Machinists, which represents US Airways mechanics and fleet service workers, has not been supportive of the merger, saying members needed a new contract before merging with their counterparts at American, who earn higher wages.
“There will be some bumps in the road and there will be some time spent in court,” said Bill Swelbar, an airline researcher at the Massachusetts Institute of Technology. “But I believe that they’ve done a pretty good job of trying to head off as many of the hiccups through their union negotiations that have taken place thus far.”
Employee policies will also have to be aligned: choosing holidays and vacation time and migrating e-mail systems, among other issues.
But for now, Parker and the new executive team at American are reveling in having created the world’s largest airline.
“This was all about an effort of trying to get our airline in position to be successful and allowing our employees to work for an airline where they knew they could build their careers and know the airline was going to be there for them as they built their careers,” Parker said. “It feels really good to accomplish that.”
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