American, US Airways Merger Snag – What Happens Next?

The following is a Q & A with FareCompare co-founder and air travel industry expert Rick Seaney on the now stalled merger of American Airlines and US Airways [Watch Rick raise some startling questions in the video below].

Listen to airfare expert Rick Seaney on what will mean for us flyers:

Q: Why would the government wait to the last minute to object to the American Airlines/US Airways merger?

A: It’s pretty clear the Department of Justice decided it was going to oppose the merger earlier this spring and spent the summer crafting a case which they filed early last week, a couple days before the judge was set to give his blessing on a bankruptcy exit.

Did the DOJ gain some political or legal advantage by filing a few days before that finalization hearing? I don’t believe it was political, nor do the attorneys for American and US Airways. After listening to the head of antitrust at the DOJ, it is clear this lawsuit seeks to block this merger and isn’t a negotiating ploy; they want to block this merger, “period.”

Legal gamesmanship in the timing. Shocking? No.

By the way, American and US Airways have been stating publicly they expected to close their merger this summer – certainly a date the parallel processes of bankruptcy and antitrust immunity were shooting for.

Why the DOJ is trying to block the merger

Q: What will be the impact on the airlines as they wait out an ultimate decision?

A: At minimum it will delay the merger as it has already thrown a monkey wrench in American’s emergence from bankruptcy; its current emergence plan assumes the merger will occur and not that the airline will continue as a stand-alone entity.

This limbo state is likely to frazzle rank and file employees, especially those on the American side, who wanted this merger after extracting concessions after years of infighting with current AA management. Remember too that AA management didn’t want this merger at first; it was US Airways that pushed it from the start using several clever tactics to insert itself into the bankruptcy process and win over the rank and file – and ultimately, AA management.

Meanwhile, creditors and investors who appeared to be avoiding a haircut will start searching Yelp for the nearest barber.

Fear of the unknown can be paralyzing to the internal workings of even the simplest of companies – and airlines are surely among the most complex companies in the world.

Q:  What will be the impact on consumers in the meantime and, what will be the impact for consumers and the airlines if this merger ultimately does not go through?

A: Short-term impact for consumers is negligible – the physical implementation of the merger was scheduled for late 2014. The longer term impact of a stand-alone situation – if no merger takes place – depends on American exiting bankruptcy with a viable business model that can withstand fuel and economic shocks, along with having to compete with three newly merged and significantly stronger carriers (United, Delta and Southwest).

Forget the big boys, the cheapie airlines are winning

US Airways has dealt fairly well with being in the middle of the pack – I would expect that would continue – but American is another matter. It had been #1 not so long ago, and having to  now compete from the middle of the pack is unchartered waters for them.

Consumers care about tickets they have bought (or about to buy) and their frequent flier miles – this delay doesn’t materially effect either for the foreseeable future.

VIDEO: Watch air travel expert Rick Seaney offer some blunt suggestion on the Willis Report.

 

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Published: August 19, 2013