American Airlines and US Airways merger creates the world’s biggest airline
American Airlines and US Airways are to announce their official merge to become the world’s biggest airline after the boards of both companies approved the deal late Wednesday.
The new carrier will keep the American Airlines name but will be run by US Airways CEO Doug Parker. American Airline’s CEO Tom Horton will serve as chairman of the new company until mid-2014.
The merger caps a turbulent period of bankruptcies and consolidation that will leave the U.S. airline industry dominated by four big carriers – American, United, Delta and Southwest.
Together the four companies will control almost 75% of U.S. airline traffic.
The deal has been in the works since August, when creditors forced American to consider a merger rather than remain independent.
American has been restructuring under bankruptcy protection since late 2011. Creditors and possibly the shareholders of AMR, American Airline’s parent company, will own 72% of the stock, and US Airways Group Inc. shareholders will get the rest.
A formal announcement is expected Thursday morning.
Travelers on American and US Airways won’t notice immediate changes.
It likely will be months before the frequent-flier programs are merged, and possibly years before the two airlines are fully combined.
When that happens, American’s presence will grow in key East Coast markets including New York’s LaGuardia Airport and Washington’s Reagan National Airport.
The merger will add US Airways hubs in Charlotte, Philadelphia and Phoenix to American’s in Dallas-Fort Worth, Chicago, Miami, New York and Los Angeles.
US Airways would boost American’s service to Europe and the Latin America-Caribbean market but wouldn’t fix American’s weakness on routes to Asia.
Just five years ago, American was the world’s biggest airline.
It boasted a history reaching back 80 years to the beginning of air travel. It had popularized the frequent-flier program and developed the modern system of pricing airline tickets to match demand.
But years of heavy losses drove American and parent AMR Corp. into bankruptcy protection in late 2011. The company blamed bloated labor costs; its unions accused executives of mismanagement.
The merger is a stunning achievement for Doug Parker and his management team at US Airways, based in Tempe, Arizona.
Just a few years ago, they were running a mid-sized carrier called America West Airlines when they bought the old US Airways out of bankruptcy.
Doug Parker’s airline is only half the size of American and is less familiar around the world, but he prevailed by driving a wedge between American’s management and its union workers and by convincing American’s creditors that a merger made business sense.
Despite its smaller size, US Airways has prospered in the last several years, earning a record profit of $637 million last year.
American Airlines’ Tom Horton professed no interest in thinking about a merger until his company was out of bankruptcy court, but his creditors pressured him to reconsider.
American Airlines lost more than $12 billion between 2001 and 2010.
It has lost another $2.8 billion since it filed for bankruptcy protection in November 2011 – a period in which US Airways earned about $650 million. Some analysts and creditors called for new management at American Airlines.
Bob Herbst, a financial analyst who studies airlines, said American Airlines has failed to adapt to changes in the industry since consolidation began in the middle of the last decade. He said American Airlines was fixated on gaining market share rather than on profitability.