Should American Airlines merge?

Before and after American Airlines bankruptcy filing, there has been a great deal of speculation on American merging with another airline.  Most often, US Airways is cited as the candidate.

The truth is, there isn’t a perfect candidate at this point.  Prior to the Delta / Northwest and United / Continental mergers, American Airlines was vastly larger in size by any measurement you would care to use.  Now there are 3 airlines roughly the same size in the United States and a larger number that are greatly inferior in size to those.

A merger should add value before anything else.  How it adds value is subject to debate.  American Airlines acquisitions never really added value so much as they eliminated nuisance competition.  American, in a sense, bought airlines more to pay off people from competing with them.  To be fair, Southwest Airlines has done this as well.

With the state American Airlines is in today, a merger doesn’t add value.  The first order of business is to get the house completely in order.  Unfortunately, this means quite a bit of pain for everyone involved and I include the executive management in this as well.  If anyone thinks they come out of this bankruptcy unscathed, they are kidding themselves.

US Airways might be a candidate for merger with American Airlines but where US Airways adds value is in conflict with the very people who are running AA today.   What I mean is that US Airways has the management team (and I do mean team, not just Doug Parker as CEO) that knows how to run a competitive, revenue positive airline in today’s marketplace.  Unfortunately, the current management team at American Airlines shows no evidence of knowing how to do so thus far.  They know how to manage money and an airline is a whole lot more than money. 

The only conceivable situation where US Airways adds value to American Airlines in a merger is if most of the executive team at AA is let go. 

Are the systems compatible?  Frankly, I think so.  Far more than I think many appreciate.  US Airways is in possession of a system that is fairly complementary to AA’s system.  US Airways has strengths in marketplaces where AA is weaker (the Southeast and Southwest) and in cities that are weaker in the American Airlines system (Philadelphia, Washington D.C., Phoenix come to mind.) 

Must the fleets be compatible?  To some degree, yes.  They need not be perfectly compatible.  Frankly, I think American Airlines could use the A330 in its system and I think US Airways could use the 777 in its system.  Both will have Airbus A320 series aircraft in a short time. 

The real challenge is labor.  Can you take one airline that has yet to see its pilots and flight attendants integrated into one system (US Airways) and merge the seniority lists with an airline’s employees that are viciously disappointed in its own company (American Airlines)?  I think that is a very, very tough job for anyone. 

In short, I think we won’t see a merger with AA and anyone else for the next 2 to 3 years.   Over that time, it is quite possible that circumstances will have evolved considerably and a candidate for merger with AA may appear.  It is entirely likely that US Airways may be that candidate.  But to expect those two to merger over inside the next two years is, I think, unreasonable.


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