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Seven Ways the AA/US Airways Merger Will Hurt You

aa american airlines new livery mountains planeAs has been predicted for a couple of years now, American Airlines and US Airways recently announced the intent to merge the two carriers into a mega-airline that would become the world's largest. It is nothing new to many travelers who have gone through the Delta-Northwest merger, or the United-Continental merger, or the countless mergers and acquisitions that have now concentrated more than 70 percent of domestic flights into just four companies.

What will this mean for travelers? While the two airlines state that the new, larger airline will make travel simpler and more seamless, and create all sorts of financial "synergies," not everyone is convinced. Here's a look at the potential downsides -- and a few upsides -- for travelers, airline employees and more.

Where Have All the Airlines Gone?
Remember a few years ago, when the "Big Seven" major airlines pushed competition for passengers to extremes that created the modern American reality of maximal mobility? The Big Seven were:

- American Airlines
- Continental Airlines
- Delta Air Lines
- Northwest Airlines
- Trans World Airlines (TWA)
- United Airlines
- US Airways

So where are we now? Well, Northwest merged into Delta, TWA merged into American, United and Continental merged, and now we have American and US Airways merging. The Big Seven is now the Truly Massive Three:

- American (to include former US Airways, TWA)
- Delta (includes former Northwest)
- United (includes former Continental)

Add to that Southwest's takeover of AirTran, and four massive airlines now control almost 75 percent of the U.S. domestic market.

With so few airlines and reduced overlap in their route maps, competitive pressure between the various airlines is a very different business these days -- and not much of it is great for travelers.

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The Dark Side
The following negative outcomes are very possible and likely to be noticed by most current customers of the two airlines, not to mention domestic travelers in general.

1. You will have fewer choices overall.
American and US Airways have stated very clearly that the goal of combining the fleets "to better match capacity to customer demand" will be one of the main ways they will increase shareholder value. For travelers, this means reducing "excess capacity" -- eliminating flight frequency and routes so that you are forced onto full planes at higher prices.

2. Prices will go up.
As airlines have trimmed flight frequency and route maps dramatically over the past few years, airfare prices have climbed steadily since 2004, with the exception of a large dip at the beginning of the 2008 recession. More pointedly, airfares have gone up around 15 percent in the past two years -- and the upcoming merger will not reverse this trend.

Though there's only modest overlap between the pre-merger American and US Airways route maps, there will almost certainly be some elimination of hubs and/or routes as the two carriers come together. As giant airlines start to monopolize certain itineraries and destinations, the incentive to keep fares down on both minor and major routes disappears.

Even now, it is often only on routes and markets served by Southwest that you can get what folks usually consider an "affordable" airfare -- for example, flying out of Philadelphia, where Southwest and US Airways compete fiercely on many routes, you can find some of the best airfares in the country.

The airlines promise that heaps of money will be saved by the merger, but you won't be saving any of that money; they will.

3. Rewards programs will be in chaos; frequent flier miles could tank.
This particular merger is problematic for "loyalty program" members (sorry, I can't write that without the quotation marks, ugh), as American's AAdvantage program is associated with the Oneworld alliance, and US Airways' Dividend Miles with the Star Alliance. It is not yet clear how this will be addressed, but it appears that the merged airline will part of the Oneworld Alliance.

Presently, US Airways is in the Star Alliance along with United -- and now will abandon that network. So travelers who have racked up a lot of miles on routes served by United and US Airways -- especially East Coast travelers -- may now find themselves in the "wrong" loyalty program, unable to use their miles.

However it shakes out, as a former elite-level Continental member, I can tell you that the switch to being a United elite-level member was anything but clean. In fact, on one post-merger trip with a connection between the two airlines this year, I was given priority boarding on the first leg, only to be unceremoniously (and somewhat rudely) sent to the back of the line on the connecting flight. I don't mind waiting my turn, but to be publicly shamed at the front of a packed boarding area was uncalled for and unpleasant. Even now, on our last trip as a family, getting everyone's account numbers updated and miles assigned was a hassle, and I'm still not sure the miles were tallied. It is also likely that some program members -- most likely current Dividend Miles members -- will have some sticker shock when it comes to getting awards on the new merged airline. This all remains to be seen at present, however.

4. Service could suffer.
airport counterTypically mergers of this type cause quite a bit of uncertainty, friction, and even downgrades in status and pay for airline staff, and this inevitably affects the quality of service and interaction passengers have with them. Add to that the prospect for labor actions, and it will be a while before the front-line staff on the new merged airline feels secure and respected enough in their jobs to offer very high-quality service. For some employees, the new environment will never be a good fit, and this will be felt by everyone.

Since the merger has looked almost inevitable for some time now, employees at both airlines have likely been feeling a lack of job security and love for a while. Many travelers have reported noticing the difference, and the language of the press release is not terribly reassuring for those folks -- when a major corporation says something "will create greater opportunities over the long term," that means the near term is going to be ugly. When they "provide the path" to improved compensation and benefits, it is almost a lock that the path is going to be long and bumpy. And we all know that when front-line employees are not happy, we are not happy.

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5. Competition may more likely resemble collusion.
One of the public secrets of airline pricing in the days of the Big Seven was the practice of one airline floating a price increase, usually on a Thursday night or Friday, and waiting to see if the others would respond. If enough airlines followed suit over the weekend, the price increase would stick; if few or none followed suit, it would disappear almost without comment.

Even then, the Big Seven were accused of all sorts of collusive and anti-competitive practices, political power-wielding and bullying, and more -- and that was when there were seven of them fighting for our dollars.

With only three or four major airlines in play, and with far less route overlap between competing airlines, downward pressure on fares is likely to be far less. Where previously maybe four or five airlines would have had to buy in to make a fare hike take hold, it could happen now even if only two participate.

6. The adjustment period will be messy.
The problems associated with merging the reservations systems of Delta and Northwest, and to an even greater degree United and Continental, were covered extensively in the travel press. These issues are not just computer-based; the new United/Continental airline is still getting creamed on most operational reviews, as business travel writer Joe Brancatelli notes.

The AA/US Airways merger is going to be no different, and everyone will feel the pain -- including regular folks booking flights, elite-level members making connections like the one I mentioned above, gate agents trying to figure out what the heck is going on with your reservation and computer technicians going without sleep to fix imploding Web sites.

7. Small and even some hub airports could get short shrift.
This will have to do with the proximity of the smaller and hub airports to the bigger airports of one or the other airlines. For example, US Airways has a very strong presence in Philadelphia -- but will that airport become an also-ran to American's extremely important JFK airport operations, only 120 miles away? Some analysts think that even Phoenix could be under threat given its location between LAX and Dallas -- oof!

Similarly, any small airports served by one airline that are very near a larger airport served by the other merging airline could see greatly reduced or even ceased operations sooner rather than later.

The Bright Side (Sort of)
It is important to realize that airfares have fallen steadily for the past 30 years -- this chart from the Atlantic shows this very clearly.

Statistics are tricky, of course; the chart dates back to the passing of deregulation in 1978 -- which is probably better considered as the beginning of market competition -- and the plummet in the early 2000's was due in part to the events of September 11. Over the past five years, the cost of flying has climbed, if driven mostly by the surge of fees (many of which are not subject to the same airfare taxes as regular fares, a bonanza for the airlines). This latest merger, and the overall consolidation of airlines in general, do not point to this trend reversing or even stabilizing in the near future. That said ...

1. Price stabilization may not be too far off.
Purely on an anecdotal basis, it seems to me that the price of many flights is reaching the limit of consumer tolerance for higher fares. I run in fairly well-traveled circles, and the price of flights is a constant conversation point. Many folks have reported reconsidering and skipping trips due to flight costs alone, especially for discretionary travel. When it costs nearly $2,000 for a couple to fly coast to coast nonstop, more folks are putting away their credit cards.

Somewhere along that Atlantic chart is the sweet spot for both airlines and passengers, one can hope. Logically, this would probably be at or around the level shown for the year 2000, which is still about $100 more per flight than current averages. Of course, the trend toward eliminating "excess capacity" may convince airlines they are better served transporting half the passengers at twice the fare, so this is not guaranteed.

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2. Some trips could become easier to book.
london parliamentIn part, American is hoping to tap into US Airways' network of smaller airports on the East Coast in order to fill up its planes on higher-priced, longer flights, such as those to London and other destinations in Europe. The two airlines have pushed this as a major benefit of the merger to travelers; in effect, they are saying, "We can get you from anywhere to anywhere." The merged airline would be able to funnel passengers from small airports like Knoxville, TN; Allentown, PA; and Lexington, KY, onto existing American flights to Europe -- assuming these small airports don't see massive cuts in service.

Whether smaller airports will face large cuts will vary from airport to airport -- after all, one of the stated reasons for the merger was for the new airline to tap into the market of folks traveling from these smaller airports to more popular and lucrative routes, especially to international destinations.

3. Smaller airlines may be able to expand.
At airports where the big airlines start to make cuts, carriers like Southwest and JetBlue may have opportunities to expand. This has generally benefited travelers nicely, at least with respect to pricing. A possible example might be Phoenix, where Southwest already has a decent presence; if the new American cuts flights in Phoenix in favor of (relatively) nearby operations in Dallas and Los Angeles, Southwest could find it easy and profitable to expand there.

I may be reaching for these, but certainly there will be some travelers who end up winners when the dust settles, and I suspect they will be among those folks who find less tortuous itineraries thanks to a much bigger and more comprehensive route map on the new mega-airline.

What's Your Take on the Merger?

Go Anyway,
Ed Hewitt
Features Editor


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