Why Are US Airways And American Airlines Merging? Behind The Creation Of World's Largest Airline

on February 13 2013 9:40 PM
American Airlines-US Airways Merger
US Airways and American Airlines are reportedly set to merge Thursday in a mega-merger that will create the world's largest airline. REUTERS

US Airways and American Airlines are reportedly set to announce Thursday a mega-merger that will create the world's largest airline. 

News of the deal, which "four people close to the situation" tell the Associated Press was approved Wednesday evening by the boards of both airlines, comes as no surprise as the Washington Post reports that US Airways has been actively pursuing such a merger for much of the past year.

If the two companies do in fact merge -- which would require the approval of both the Department of Justice's Antitrust Division and the judge handling American Airlines' bankruptcy, which the merger is expected to resolve -- ABC News reports that the new company would most likely be called American Airlines.

But the CEO would be current US Airways CEO Doug Parker, while current American Airlines CEO Tom Horton would be named chairman of the new company, AP's sources said.

As for why the merger is taking place, that's a little more complicated. Back in August, creditors demanded that American, which has been under bankruptcy protection since 2011, seek a merger rather than continue to restructure as an independent company.

As such, American, which had already been in conversations with US Airways, began to work out a deal with the company. The two carriers have already worked out agreements with pilots, flight attendants and mechanics, according to ABC News. This groundwork suggests that the deal is better orchestrated and will proceed more smoothly than many other mega-mergers, which often see major issues when employees of two or more entities are brought under one umbrella.

Also, ABC News reports that the frequent flyer mile programs of both airlines will merge within months, eliminating yet another possible point of stress for the deal.

The creation of the new airline will mark the third major airline merger since 2008. Delta and Northwest merged that year, retaining the name Delta, and United and Continental joined in 2010, forming the current largest airline, United Airlines, which is slightly smaller than the company that will be created by the American Airlines-US Airways merger, according to ABC News.

There are a number of concerns, however, because if the merger is approved, 86 percent of domestic air travel will be handled by just four carriers: Delta, United, Southwest and the new, bigger version of American Airlines. Together, American and US Airways will be slightly bigger than United.

And fares could go up for domestic flights. Though American and US Airways are not competitors on many of their main routes, ABC News Travel and Lifestyle Editor Genevieve Shaw Brown says that less competition between carriers often means higher ticket prices for travelers.

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