Airline merger wave crests with American-US Airways

The merger of American Airlines and US Airways will create a new mega-carrier that will be a stronger national and international rival for Atlanta-based Delta Air Lines.

And Delta’s OK with that.

“We think it’s good for the industry,” Delta president Ed Bastian said at a breakfast meeting last week as the American-US Airways deal, announced Thursday, took shape. He added it would lead to more “disciplined” competition in the industry.

The deal is seen as concluding an era of consolidation that started with the Delta-Northwest merger of 2008 and has now shrunk the industry to four major players: United, American-US Airways, Delta and Southwest.

Industry executives say the realignment will calm the fierce competition in the industry that drove billions of dollars of losses in past years, due to excess capacity and fare wars.

Flier advocates, however, warn that fewer airlines competing against each other could mean higher fares and fees.

The deal comes as part of American’s restructuring under Chapter 11 bankruptcy protection and US Airways’ ambitions to grow and vault into the big leagues with airlines the size of Delta and United.

US Airways chief executive Doug Parker – who tried but failed to engineer a merger with Delta during Delta’s bankruptcy several years ago - sees the deal as the last major airline merger among U.S. carriers.

“This is the last major piece needed to fully rationalize the industry, enabling airlines to not only be intentionally competitive but also sustainably profitable,” Parker said.

The direct effect on Atlanta fliers will be muted.

Neither American nor US Airways has a big presence in Atlanta — together accounting for just over 3 percent of the traffic at Hartsfield-Jackson International Airport combined. Most of their flights are to their own hubs. American, with 31 daily departures, flies from Atlanta to Dallas/Forth Worth, Chicago, Miami and New York LaGuardia. US Airways, with 17, flies to Charlotte, Philadelphia and Phoenix.

Delta remains dominant in Atlanta with more than three-quarters of the market share, followed by AirTran Airways, which with merger partner Southwest Airlines carries about 15 percent of the passengers.

Chris McGinnis, editor of The Ticket, a newsblog for frequent travelers, said there could be little impact focused on Atlanta business travelers. American and US Airways’ purpose in Atlanta is to offer service from their own hubs rather than take local Atlanta market share. McGinnis said they do not compete on any routes out of Atlanta and “neither has ever competed on price with Delta.”

Outside Atlanta, however, the enlarged American will hope to win customers from Delta, United and Southwest, especially in contested non-hub markets such as New York and Los Angeles. It hopes to do that with a larger route network that offers loyal fliers more flights and perks, backed by a stronger balance sheet.

The combination of the two airlines could eventually bring one benefit for Atlanta travelers who have frequent flier miles on both airlines — the combination of frequent flier programs could allow them to combine enough miles for a free flight, McGinnis noted.

But more broadly, said publisher Tim Winship, another airline merger could lead to across-the board air fare increases that spill into Delta markets.

“We will indeed see higher fares as a result of further industry consolidation,” Winship said. “Delta I have no doubt is licking its lips right now at the prospect of having one fewer competitor and is probably thinking very seriously about which routes to raise their prices on and how much they think they’ll be able to get away with in a post-merger world.”

American, based in Dallas-Fort Worth, will be the surviving carrier in the merger with US Airways. Combined, the two airlines have a U.S. domestic market share of about 26 percent based on current flight schedules, according to Atlanta-based travel data firm Innovata LLC.

That compares with 19.6 percent for Delta; 19 percent for United, which bought Continental in 2010; and 18 percent for Southwest-AirTran. Southwest now owns AirTran and is gradually integrating its operations.

While airline executives may like the ultimate effect of mergers, they remain difficult to pull off cleanly. Myriad issues, from blending differing booking technology to merging worker seniority lists, must be handled while maintaining massive daily operations.

“During the actual merger period,” Winship said, “that’s probably a good time to actually be a Delta customer, so you don’t have to put up with the likely disruptions that I think we’re probably going to see as American and US Airways work to actually integrate their very complicated and very different operations.”

Jeff Lamb, Southwest’s chief people and administrative officer, said recently: “If competitors are going into that, we know that they’ve got a long road ahead. It’s really hard and we’re glad to be on the other side of it.”

Still, the advantages have continually drawn airlines together.

“Bigger is better in the airline industry, from the operational economics side and also to some extent, from the customer side as well,” Winship said. “It helps with your frequent flier program because there are more options for earning and redeeming your miles, so in a number of different ways, a bigger airline is a more attractive airline.