American Airlines parent AMR Corp. and US Airways Group officially announced their $17 billion merger Monday, creating the world’s largest airline and likely marking the end to a wave of major-carrier consolidation that has helped put U.S. airlines on more sound financial footing.
The merged airline inherits the American Airlines name and the US Airways CEO. The new American Airlines Group is instantly bigger than Chicago-based United Airlines with a global network with nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide.
Now, just four airlines -- American, United, Delta and Southwest -- control 85 percent of the U.S. market.
The merger, announced on Valentine’s Day this year, was finally consummated Monday, overcoming many hurdles including American operating in bankruptcy protection and an antitrust lawsuit by the Justice Department, which tried to stop the combination.
“American has a tremendous legacy and knows what it feels like to be the best,” said CEO Doug Parker, who had held that title at US Airways. “The new American is about getting that feeling back.”
The merged airline will maintain a hub at Chicago O’Hare International Airport, where the airlines have little overlap (American has a large presence and US Airways has a relatively small one.)
Experts have said they don’t necessarily foresee airfares rising as a result of the merger, especially in Chicago where two major airports and a number of competing airlines keep fare hikes in check.
At O’Hare on Monday, employees of American and US Airways celebrated the merger while getting to know one another. The merged airline has about 8,500 Chicago-based employees.
“We want the employees to feel they are now one,” said Franco Tedeschi, an American Airlines vice president in charge of operations at O’Hare.
Unlike other mergers, mass layoffs are not part of the plan.
“We feel very confident as we go forward with the merger that we will not displace any employees,” Tedeschi said. In fact, American this year has brought back hundreds of O’Hare-based employees since the company cut jobs following its entrance into bankruptcy protection in 2011.
After the celebrations on Monday, though, begins the tricky process of integrating two large airlines. It’s a feat that has proved problematic in other combinations, notably for United and Continental Airlines, which merged in 2010. Rampant flight delays and cancellations resulted last year after the airlines moved to a common reservation system, the technology backbone of the airline. Technology glitches and inadequate employee training on the system were blamed.
The newly combined airline is likely to use American’s reservation system, although a decision hasn’t been finalized, said Donna Paladini, a vice president at US Airways. “What we’ve learned in past mergers is it’s best to go with the larger company’s systems,” she said.
She said the combined airline will take its time to communicate with employees and customers as well as “take a look at every aspect of the airline as we put them together,” choosing the best systems and processes of each. “A lot of time and thought is going into this one,” she said.
CRT Capital, in a note to clients on Monday, was optimistic about integration. “We believe management knows from personal experience (US Airways/AmericaWest merger) and recent industry successes and failures, how to get it right,” the report said.
Unlike other mergers, unionized employee groups and management already see eye-to-eye, striking labor deals before the merger even happened. That’s important, Tedeschi said. “Labor is huge,” he said. “Labor is 100,000 employees committed to the same goal.”
For example, the American Airlines flight attendants union, the Association of Professional Flight Attendants, gushed Monday at the official merger announcement. “Christmas has come early for the APFA,” said union President Laura Glading. “It’s been a long, tough slog, but today our hard work has paid off. The flight attendants of the new American are looking forward to building the world’s greatest airline.”
At O’Hare, the new American is expected to be a more formidable competitor to United Airlines, which is the dominant airline in Chicago. Tedeschi would not directly address taking on United at O’Hare, but said, “we will continue to ensure that we are competitive in Chicago. We will offer the network that makes sense for our customers,” he said.
The merged airline will continue to support a modernized and expanded O’Hare, but only as necessary, Tedeschi said. “Along with United, we’re committed to supporting an (O’Hare expansion) plan that is based on demand, and we will remain committed to that,” he said.
Nationwide, American intends to take advantage of its broad global network to win more corporate customers, the company’s president said. “We will now have a network that can get customers everywhere they want to go. Because of that, we have more ability to compete for corporate customers,” said Scott Kirby, the former president of US Airways who has that role at the new American.
Corporate customers can spend three times as much as leisure travelers, making them a lucrative segment for airlines. Kirby said corporate accounts could bring in “hundreds of millions of dollars.”
The process to receive a single operating certificate, which will allow the airlines to combine operations, will take 18 to 24 months, the airline said. In the short term, it will be business as usual, as the airlines continue to operate mostly separately.
For example, the airlines’ separate websites, aa.com and usairways.com, as well as the two airlines’ reservations systems and loyalty programs, will continue to operate separately until further in the integration process.
The newly merged airlines will be part of American’s Oneworld Alliance. US Airways will exit its current membership in the Star Alliance on March 30 and immediately enter Oneworld the next day, the airlines said.
The first evidence of a combined airline will come in early January, when the airlines begin offering some reciprocal frequent-flier benefits.
The new American Airlines Group has annual revenue of about $39 billion based on 2012 figures. It has a solid presence on both U.S. coasts and on North Atlantic routes, given American’s revenue-sharing joint venture with British Airways and Iberia. Besides Chicago, the new carrier has hubs in Dallas-Fort Worth, Miami, New York, Los Angeles, Phoenix, Washington, Philadelphia and Charlotte.
Shares of the new airline began trading Monday on the Nasdaq under the ticker AAL, closing Monday at $24.60, up 2.7 percent.
The stock may reach $39 by 2015, estimated Hunter Keay, a Wolfe Research analyst, while Jamie Baker of JPMorgan Chase & Co. sees American rising to $37.