Jugger-Not? The new American Airlines is cleared for takeoff. Now it must execute
Airline fans can likewise rattle off a litany of past mergers that underwhelmed. And those were the ones that weren’t downright disasters, such as none other than American’s acquisition of TWA, which arguably set off the series of events that weakened American and eventually pushed it into bankruptcy on its way to (essentially) an eventual acquisition by US Airways, in what is officially a merger of equals.
Well now it’s time to take the field. With the Justice Department out of the way, the biggest threat to the new American’s success is the airline’s own execution of the merger, particularly—but not only—as it integrates the two areas that have most often dogged other airlines in their first two years after merging: labor and technology.
One thing that distinguishes airline mergers from mergers in other industries is that airline mergers aren’t mostly about cost synergies. Sure, some of those exist: more purchasing power when negotiating with suppliers, for example. Or reduction of redundant management, or efficiencies with airport operations: no need to have a whole group of people and equipment rather unproductively handling a small number of US Airways flights at Miami or American flights at Philadelphia. But the first thing the new American will do, on day one, is give big raises to most of its workforce. So before it can start working on exciting but uncertain revenue synergies, it will spend a lot of certain money on its people. And this is an airline that, on the pre-merger American side, has returned itself to respectable (but not world-beating) profitability mostly because of what it took away from its workers during bankruptcy, some of which it will now quickly give back. It will spend a lot of other certain money integrating its systems and procedures.
And even on the revenue side, where the majority of synergies should eventually come, American will start by immediately giving up 44 high-revenue daily round trips at Washington’s high-revenue Reagan National Airport and another dozen at New York LaGuardia. (Technically, it’s giving up even more slot pairs than that, but the rest are already on loan to other airlines.)
The last time US Airways was involved in a merger, the deal worked out very well for the airline—messy integration between America West and US Airways aside, the fusion probably saved both airlines. US Airways would have been out of business within months, and America West likely would…
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