My predictions for an American and US Airways merger

All signs point towards an American and US Airways merger being a near done deal, and I’ve received several emails/questions from readers asking about my thoughts if a merger were to go through. So I’ll share my thoughts, though I’ll preface it by saying that I’m just an airline nerd that’s speculating, so take what I say with a grain of salt.

If a merger goes through I don’t think it’s because the two airlines really complement each other that well, but rather because process of elimination destined them to be together. It’s basically like a middle school PE class where all but two kids have been picked for a flag football team, and now the last two have to stand there awkwardly knowing they’re being picked but not because they’re any good.

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Let’s be honest with ourselves, US Airways brings very little to the table. I respect them as an airline and think they run a smooth operation, but their route network leaves a bit to be desired (not that American’s doesn’t). American and US Airways serve a similar number of destinations in Europe, while that’s just about the extent of US Airways’ international route network. Meanwhile American has an extremely strong route network to Latin America, and a weak route network to Asia, where US Airways would bring nothing to the table. So this would simply be a merger to reduce competition and stroke the egos of the executives.

So how do I think a combined airline would look?

A combined loyalty program

I suspect we’d see the following in a new loyalty program:

• Four elite tiers, similar to what both United and US Airways have (at the 25,000 mile, 50,000 mile, 75,000 mile, and 100,000 mile levels).
• Complimentary upgrades for all elite members, given that American is presently the only legacy airline that still requires their non top tier elite members to earn/purchase “stickers.”
• Elimination of American’s complicated EQM/EQP system (whereby you earn both “miles” and “points” for a flight), but rather just a straight EQM system like United and US Airways, where you earn an elite qualifying miles bonus for travel on full fare and premium cabin tickets.
• Elite mileage bonuses would be cut to match those offered by United and US Airways, with a 25% bonus at the 25,000 mile tier, 50% bonus at the 50,000 mile tier, 75% bonus at the 75,000 mile tier, and 100% bonus at the 100,000 mile tier.
• American would change their systemwide upgrade policy. Presently they have by far the most generous international upgrade policy for elite members, given that they offer Executive Platinum members eight systemwide upgrades with no fare restrictions per year. I suspect this change would have occurred either way as American rolls out their new business class. I’d guess they’ll cut back the number of systemwides to six, and add either fare restrictions or co-pays, similar to those on upgrades using miles.

Alliances and awards

While the timeframe is anyone’s guess, I would speculate that US Airways leaves Star Alliance within six months of a merger announcement and joins OneWorld shortly thereafter, before the airlines have a single operating certificate. All Star Alliance award tickets would of course still be honored, though once they leave the alliance no changes will be possible. On the plus side I don’t think we’ll see any major adjustments to the airlines’ award charts until the merger is complete, since they have bigger fish to try if this goes through.

Since it’s safe to assume that the combined airline will belong to OneWorld, I suspect that American’s current award rules will continue to apply, which is both a good thing (free changes are allowed after booking as long as the origin and destination remain the same and changes can be made after departure) and a bad thing (routing rules aren’t as generous, no stopovers except at the international gateway, etc.).

So if you’ve purchased US Airways miles I wouldn’t be worried. I don’t want to say that a merger would increase the value of Dividend Miles, but I don’t think it’ll necessarily decrease their value either.

Hubs

Often times the biggest losers of a merger are those in hub cities which end up getting cut back as a result of the merger. We saw this with Delta in Cincinnati and Continental in Cleveland.

US Airways has hubs in Charlotte, Philadelphia, and Phoenix, while American has hubs in Chicago, Dallas, Los Angeles, Miami, and New York.

American has extremely strong hubs and I don’t think we’ll see any “victims” on their end. Chicago is a really strong market for American where they’re neck-to-neck with United, and I doubt they want to give up market share. Dallas is probably American’s strongest hub, and it seems to do well for them. Los Angeles and New York are valuable hubs simply because they’re, well, Los Angeles and New York. And Miami is hugely valuable given that half of American’s route network seems to be to Latin America, and that’s their gateway.

On the US Airways front I think we’ll see Phoenix cut back even further. US Airways doesn’t have any international longhaul service out of there anyway and uses it primarily as a domestic hub, so I suspect we’ll see it go the way of Cincinnati and Cleveland (though I’d argue it already has). While I don’t think Charlotte will be cut back quite as much, US Airways dominates the market so even with some frequency and routing cutbacks, they can still stay in charge there and probably drive up prices even further with enough capacity cuts

And that leaves Philadelphia. Is there enough demand to sustain both a Philadelphia and New York JFK hub? If I had to guess, I’d say yes, given the amount of transatlantic traffic the airlines have out of both markets. I’d guess that long term the airline would use Philadelphia as a hub for European service for those connecting from elsewhere (I suspect it’s much cheaper and more reliable to operate out of Philadelphia), while they’ll focus on improving their product out of New York so that most of their service out of JFK is made up of people originating and terminating there.

When you look at United, they seem to do just fine operating two sets of hubs just a couple of hundred miles apart (Los Angeles/San Francisco and Washington/Newark), so I see no reason that the “new” American couldn’t do the same.

Anyway, I might be jumping the gun a bit, but I figured I’d put in my predictions so that I can later either say “I told you so” or take the walk of shame.

What are your predictions for a merged airline?