A U.S. bankruptcy judge has cleared the way for a merger between U.S. Airways and American Airlines’ parent company, AMR. The ruling Wednesday okayed an anti-trust settlement with the Department of Justice. The merger is part of American’s plan to get out of bankruptcy after two years and repay creditors. The corporate deal will result in the world’s biggest airline.
It may be the last U.S. airline merger in a long time. The industry has now whittled itself down to four carriers that will dominate about 80 percent of the domestic market -- Southwest, United, Delta and the new "American Airlines Group." Mike Boyd, president of the consulting firm Boyd Group International, says after a decade of intense consolidation, he expects the industry to enjoy a little stability.
"The crazy people are gone," he says. "Fuel prices, they’re high, but they’re stabilized. There’s not a lot of excess capacity coming online. So the airline industry, financially, has a pretty healthy future."
So what should passengers expect? Higher prices, according to some analysts. However, Darryl Jenkins, chairman of the American Aviation Institute, insists that won’t be due to fewer airlines.
"I think this is one of the great myths that consolidation in and of itself will force ticket prices up," Jenkins says. "What’s more likely is if we see the price of jet fuel going up again, that will have a tremendous effect."
Also, expect a few glitches, technical and otherwise, as American and U.S. Airways merge. Jenkins says there are hundreds of thousands of decisions and changes to be made when two big airlines marry. There are bound to be some problems.
When America West took over U.S. Airways in 2005, for example, the online reservations system and check-in kiosks malfunctioned. Customers got angry. Adam Pilarski, senior vice president at the consulting firm Avitas, says that was "a textbook example of how not to do it."
If the American-U.S. Airways merger suffers too many problems that adversely affect business, Pilarski says, that could invite rivals to pounce. "If the competitors sense blood in the water, if they sense that the new airline is not doing well, they may try to gain market share, they may try to enter new markets," he says. "They may perceive them as being weak and this is the time to strike."
The two airlines are expected to officially merge on Dec. 9. Shares of the new company will trade on the Nasdaq under the ticker symbol AAL.