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American Airlines And US Airways: Good Or Bad?

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In April, US Airways struck deals with three of American's labor unions in support of a merger.
On Friday, August 31, US Airways and American Airlines signed non-disclosure agreements (NDAs) to explore any potential merger.

Here's a look at how a merger may affect frequent fliers, followed by comments from management and representatives for the flight attendants and the pilots (for those like me that want to better understand why labor favors a merger).

What a merger could mean for frequent fliers
Now that American and US Airways are exploring a potential merger, fliers may ask themselves how this bodes for them.

It's both a good news and a bad news answer.

Good news: Such a merger would fill in gaps in American's coverage. A July press release highlighted remarks about American made by US Airways CEO Doug Parker at a media luncheon. "American cannot easily serve the popular and highly lucrative East Coast region, which causes it to miss out on an enormous source of corporate business, as well as all the consumers who travel up and down the Eastern Seaboard," Parker said.

Frequent fliers may benefit as well. "A merger ... will expand American's network so that it's easier to get a flight from New York to Boston," said Patrick Hancock, a national retirement specialist for the Assn. of Professional Flight Attendants (APFA). "US Airways' strong presence along the East Coast can help American catch up and compete with Delta and United's network."

American also would benefit from US Airways' more modern, fuel-efficient fleet, which could help cut its costs.

But the bad news, at least for consumers who watch their pennies, is that yet another merger decreases competition. In recent times, we've seen the merger of United and Continental; Delta and Northwest; Southwest and AirTran. Decreased competition rarely leads to lower prices. And it's difficult to know how much of the recent surge in airfares is the result of mergers and how much is attributable to increased fuel prices.

American Airlines Corporate POV
Bruce Hicks, a spokesperson for American Airlines, says that American Airlines has developed a plan to emerge from bankruptcy as a standalone carrier, and the Unsecured Creditors Committee (UCC) has been very supportive of that plan.

"American needs to successfully restructure to be sustainably profitable, and with new planes ordered last year, American will have the youngest fleet in the industry by 2017," says Hicks.

The only reason American Airlines didn't file for bankruptcy in 2003 was due to last minute consensual agreements with unions for the pilots, the flight attendants, the mechanics and ground workers. In hindsight, many industry observers think the airline may have been better off if it had gone through bankruptcy then to improve productivity. Despite pay cuts, Hicks says that American Airlines has had the highest costs in the industry for its pilots and flight attendants.

Although unions for the flight attendants and mechanics recently signed consensual agreements with American, the pilots have been unable to reach an agreement with the airline. On September 4, U.S. Bankruptcy Court Judge Sean H. Lane granted American's motion in the bankruptcy to implement the changes that it needs to make to reduce costs and improve pilot productivity.

"Our goal remains to reach a consensual agreement with our pilots, and we are resolute in our efforts to put American Airlines in a position to win and create new opportunities and a brighter future for our people," says Hicks.

Although the flight attendants union sees the latest agreement as a 17% pay cut, Hicks disagrees: "The total costs for flight attendants will be reduced 17% primarily through improved productivity, meaning they will have to fly more and be scheduled more efficiently, but pay rates will actually increase." He noted the flight attendants will also receive profit sharing, a 401k match and a 3% equity stake in the new American. To try to avoid any layoffs because of the increased productivity, American offered flight attendants with at least 15 years seniority a voluntary "early out" severance of $40,000.

The Flight Attendants POV "They say I do not see the big picture," says Patrick Hancock of the APFA. He continues:

Well, the little picture I'm looking at is: this is the management team that ran us into bankruptcy. The current 'early out' option doesn't offer anything other than a cash payout for flight attendants. One of new concessions was that retiree pays full medical cost of almost $500 a month, each, which means a flight attendant needs to be 65 and have Medicare or a spouse with good medical benefits. I plan to be here for the rest of my career, I would not bet a dollar that Tom Horton will be there for the rest of his career.

The Pilots POV
Tom Hoban, Communication Chairman for the Allied Pilots Association, has been a pilot with American for 21 years. In the last decade, he has seen American "go from first to worst in the industry. We used to specialize in catering to corporate clients, and as a standalone company American simply doesn't have the network size that would allow it to compete with United and Delta for corporate customers. I took a 50% pay cut in 2003, lost my Captain status and subsequently 3,000 pilots were laid off. While the airline was losing a billion dollars a year over the last decade, executives extracted hundreds of millions of dollars in bonuses."

He says that American Airlines management should have been buying new airplanes well before the bankruptcy in order to keep pace with the competition rather than flying gas-guzzling planes like the MD-80. "American pays 30% more for fuel than the competition currently does. US Airways has invested in a fuel-efficient Airbus fleet," says Hoban.

Conclusion
As a Delta frequent flier, since the bankruptcy and the merger, it usually costs me at least 40,000 miles to fly cross-country whereas before the bankruptcy, I could fly roundtrip from LAX to JFK for 25,000 Delta Skymiles.

In recent years, I have taken several roundtrip coast to coast flights on American for 25,000 Aadvantage miles. Whether or not there's a merger, I hope my Aadvantage miles will take me as far post bankruptcy as they do today.

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