(Photo: Jim Watson, AFP/Getty Images)
USA TODAY - American Airlines (AMR) and US Airways are closer to a merger agreement that would create the world's biggest airline, according to several news outlet reports Thursday morning.
The two airlines have been negotiating a deal for at least a couple of months and neither airline has confirmed whether the deal will happen or what the timing might be. A Wall Street Journal report this morning says the deal could be announced as early as Monday, while a CBS network news report and others say the deal won't be finalized for several weeks. All the reports cite unnamed sources close to the merger talks.
The two major airlines have been working on trying to make a deal work the past few months. A marriage of the two airlines would initially create the biggest airline in the world in terms of revenue and be worth more than $10 billion.
A merger also would give passengers easier access to a larger network of destinations, particularly along the eastern seaboard, as well as Europe and Latin America. At present few of the routes overlap, which could help clear any anti-trust concerns from the government, which would have to approve any union of the two carriers.
United Continental is the biggest U.S. airline by traffic, but that could change if the merger happens. The all-stock deal would also allow American to emerge from Chapter 11 bankruptcy, where it has been since November.
Proponents of the merger argue that a combination of the two is necessary if American and US Airways are going to be able to compete with the jumbo-sized carriers created by a recent flurry of mergers.
But it would also be the U.S. airline industry's fourth mega-merger in five years, removing yet another large network carrier from the landscape, and potentially erasing some routes and sparking a rise in fares.
After American's parent company AMR filed for bankruptcy protection in November 2011, its chairman and Chief Executive Officer Tom Horton said repeatedly that he wanted the company to emerge from the restructuring as an independent airline. But US Airways CEO Doug Parker made a very public push to merge the carriers.
In a move that seemed to signal that its brand would remain dominant, American revealed a new logo and livery for its fleet in January, the first external makeover in over four decades.
American began showing improved financial results last year, with an operating profit of $494 million for all of 2012, not counting special items. However, it posted an $88 million loss in the last three months of the year, not counting reorganization and special items. Profits were hindered in part by Superstorm Sandy and a snow storm that struck in November, the company said.
The smaller US Airways, meanwhile, has been consistently more profitable. It hit a record last year, with a net profit of $537 million, not counting net special items.
Although a deal is not inevitable, there have been moves to make it easier. American's unions reached tentative agreements with US Airways in case a merger occured. And last month, the board for the Allied Pilots Association, which represents American's 10,000 pilots, approved a memorandum of understanding that lays out a framework for a new joint contract for its members and US Airways' pilots in the wake of a merger.
The prospect of a peaceful integration of the two airlines' flight crews has made the idea of a merger less daunting.
US Airways' Parker has said that a marriage of his airline and American would enhance their networks and enable the carriers to better compete in an industry now dominated by mega-sized airlines.
Delta Air Lines and Northwest linked up in 2008, United Airlines and Continental merged in 2010, and Southwest completed its purchase of AirTran in 2011.
Passengers, particularly the highly coveted business travelers, should be able to fly to more destinations on an expanded network of routes.
American will strengthen its footprint in New York, and those passengers who have preferred it should have an easier time flying along the East Coast because of US Airways' strongholds in Charlotte and Philadelphia.
Those cities can also enhance access to international flights across the Atlantic, and the newly combined carrier could give Delta a run for its money by offering travelers an alternative to Delta's Atlanta hub - the busiest airport in the world -- flying instead through Miami or Charlotte, Harteveldt says.
The combined airline would also likely keep American's popular Advantage loyalty program, the oldest in the industry.
But a combined carrier could also lead to a shedding of routes or hubs, and eventually higher fares, some analysts warn.
George Hobica of airfarewatchdog.com is certain that "we'll see higher fares on some routes,'' particularly for non-stop flights between the two airlines' hubs, such as Charlotte and Dallas.
But analysts say the upside is that passengers needing to rebook a canceled or delayed flight will have more options thanks to a bigger map of destinations. And US Airways passengers can benefit from American's joint venture with international carriers like British Airways, which allows the partner airlines to coordinate schedules and pricing.
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