Winners and Losers as American-US Airways Merger Moves Forward

The CEOs of American and merger partner US Airways said they were happy to have reached a settlement with the U.S. Department of Justice despite a number of concessions agreed to. As FareCompare reported in August, the DOJ sued to halt the merger – which would fly under the American brand – fearing loss of competition would mean higher prices for passengers. This may happen anyway, says airfare analyst and FareCompare CEO Rick Seaney.

Listen: Analyst Rick Seaney’s assessment

See what the airlines gave up

We asked Rick Seaney to compile a preliminary list of winners and losers, and here’s what he had to say:

The Winners

American and US Airways employees: The worst part is over – fear of the unknown, as in – will we merge or not? Now these folks can finalize plans and settle into the holiday season.

Slot-divested cities on limited routes: Travelers can look for more competition on certain routes and cheap introductory pricing.

Other airlines:Other carriers, including low-cost airlines can gobble up the now-freed slots and have more to offer customers. Big winners here could include JetBlue and Southwest and potentially Spirit/Virgin America (it isn’t clear other legacy airlines will be allowed in on the bidding).

The airline industry overall: Mergers can keep airlines afloat, and a healthier domestic airline industry has more to spend on its product (including new planes).

The Losers

Smaller regional cities:These will take the brunt of future airfare hikes when the economy finally perks up (which is limiting prices at the moment along with fuel). The settlement does nothing to alleviate their pain.

Consumers in the long run: Given the sparsity of competition, they will likely pay higher ticket prices in the future. Remember, in the past decade, we’ve seen the industry transformed from one that boasted eight large airlines to a mere four. With the latest merger, it drops to three. It is likely we’ll be sitting around in 2020 saying I wish we still had 8 carriers.

Loyal customers whose loyalty is virtually assured to one airline after four huge mega mergers: They will have little choice when it comes to which airline they want to be loyal to, in terms of miles programs.

What Will Airfare Cost

I believe that in the next few years, the main driver of price won’t be competition but the tepid economy along with fuel prices. But this could change if the economy unexpectedly perks up.

Leisure travelers:A few will benefit from newly competitive routes. The 2% of the New American route system that was divested will be flying at bargain prices once the swaps are implemented (at least for an introductory time period as airlines discount to introduce their product).

Business travelers: These folks will continue to pay a hefty premium for convenience and their traditional last-minute purchases, so nothing much changes here.


Published: November 12, 2013