US Airways and American Airlines announced a merger Thursday. The move would create the world’s largest airline and place 86 percent of domestic air travel business in the hands of four big carriers. Reports suggest that the merger plan have already been approved by the boards of both carriers.
The merger’s resulting corporation will retain the name American Airlines, but the current US Airways boss, Doug Parker, is likely to be the chief executive officer. Its head office will be in AA’s Dallas-Fort Worth base in Texas.
The new airline company will be closer in worth to competitor Delta Airlines, which has a market value of around $11 billion. Moreover, the merger would save from insolvency American Airlines, which filed for bankruptcy protection more than a year ago.
Analysts think that the merger could generate a fresh wave of competition at the Reagan National Airport, where AA and US Airways have considerable overlap. Together, the two airlines will have a monopoly of more than 68% of the domestic US air travel, a condition that has the potential to worry competition regulators.
It is pertinent to mention here that the deal would require approval from regulators and a US bankruptcy court before becoming effective. Moreover, air travelers are likely to notice any changes years after the new AAs start its operations.
The merger comes after a phase of extreme consolidation for the domestic airline industry, with Delta Airlines linking up with Northwest and Continental with United.
However, forecasts for 2013 indicate that the domestic airline sector would be the healthiest when it comes to absolute profit on a global level.
Some analysts think that the marriage of AA and US Airways may not perk up the company’s profits, given that size alone does not guarantee more profitability. It is pertinent to mention here that Southwest Airlines is the largest in terms of profitability both internationally and domestically, yet it is not the largest.
“American and US Airways control the lion’s share of slots at National,” said William S. Swelbar, a researcher at the MIT International Center for Air Transportation, according to the Washington Post. “I expect that the regulators will force a combined American-US Airways to divest themselves of some of the slots, and competitors would be free to compete for those available slots.”