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American Airlines and US Airways announced the terms of a merger

For these partners, it’s a match made in heaven – or at least 30,000ft in the air.

American Airlines and US Airways announced today they have agreed on the terms of a merger, successfully closing the deal in an industry now dominated by a few mammoth carriers. The combined airline, which will retain the American Airlines name, will be the largest in the world in terms of passengers carried (the airlines carried a combined 166 million passengers in 2011) as well as revenue (more than $11 billion).

The new airline stills need federal approval to ensure the partnership doesn’t drastically reduce competition, but other airline mergers, such as the 2010 Continental-United merger, sailed through government scrutiny, and analysts expect similar safe passage here.

But is it a match made in heaven – or elsewhere? The marriage cements a decades-long trend in the airline industry toward consolidation. Consider this: the US industry has gone from 10 major airlines in 1988 to just three today: Delta, United and the newly-merged American.

“Consolidation is a euphemism for fewer seats, and with fewer seats comes higher prices,” wrote Justin Bachman, reporter for Bloomberg Business Week.

Following this theory, the American Airlines-US Airways merger will bring about less competition, less choice and higher prices. After all, the merger will leave just four airlines – Delta, United, American and Southwest – controlling about 83% of US seats.

But consolidation has also helped stabilise the airline industry, reported the Wall Street Journal (WSJ). The industry’s three major mergers: Continental-United, Delta-Northwest, and now, American-US, have produced “a healthier industry with the prospects of sustainable profitability and investment-grade credit ratings”

In fact, 2013 looks as though it may be one of the most profitable years in recent history for the airline industry, and a vibrant marketplace means good news for consumers. Competition is likely to remain vigorous as discount carriers like JetBlue and Southwest still account for about 37% of domestic flights, keeping prices down.  And, according to the WSJ, even after three mega-mergers, domestic fares are actually 15% lower than they were in 2000, adjusting for inflation.

Happily ever after? Probably not. But after some initial turbulence, we expect the American Airlines-US Airways marriage will be a healthy union in the long run, with benefits for both the airline industry and consumers.

Source: BBC News

Category: World News |

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Last updated March 25, 2017 at 5:40 PM
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