American Airlines and US Airways merger issues

American Airlines/U.S. Airways merger issues

In January 2012 U.S. Airways Group, the parent company of U.S. airways, expressed interest in acquiring AMR Corporation, American Airlines parent company. This merger would add 1.5 billion dollars in revenue reduce competition in various cities and create one of the largest airlines in aviation history. For shareholders and workers this is a great thing. Some of the benefits are more destinations, more flights and the possibility of pay increment in all departments. All of these things are beneficial to individuals but there are a lot of potential issues as well. The issues being discussed in this case study are the labor unions and how they will manage to take the responsibilities of transferring employees over, U.S. Airways leaving the Star alliance to join One World, employees that could lose their jobs, including American Airlines CEO Tom Horton. There are a lot of comparing and contrasting between other airlines that have merged and how they managed to operate. The questions that will be answered in this case studies are: How will unions keep workers jobs and seniority standard? How will the merger affect the route structure? Will the new American Corporate headquarters be in Dallas, TX or Phoenix, AZ? And how will the merger effect travel rates and number of overall flights?

American Airlines/U.S. Airways merger issues

Background/Company History:

US Airways

US Airways Group is a holding company which majors in the network air carrier through integration of the wholly owned subsidiaries U.S. Airways, Piedmont Airlines, Inc., PSA Airlines, Inc., Airways Assurance Limited, and Material Services Company. The group operates the fifth largest airline in the context of the United States in relation to the determined domestic revenue passenger miles and the concept of the available seat miles. The group also has hubs in relation to Washington D.C., Phoenix, Charlotte, and Philadelphia. U.S. Airways have the ability to offer scheduled passenger services to more than 198 communities in the United States, Canada, Europe, Mexico, Caribbean, Central and South America, and the Middle East. In addition, the entity also has an established East Coast route network thus inclusion of the U.S. Airways Shuttle service (U.S. Airways Group, Inc. SWOT Analysis, 2012).

The company possesses the capacity of handling more than 3,100 flights on a daily basis. In the context of the six months ended on June 30, 2013, the company had satisfied the needs and preferences of about 28 million passengers boarding on the mainline and 346 mainline jets under the support of the regional airline subsidiaries and affiliates operating as the U.S. Airways Express in accordance with the purchase agreements. During the similar period, the entity managed to operate 238 regional jets as well as 3 turboprops to supplement the efforts of the prorate carriers in the context of the regional jets (U.S. Airways Group, Inc. SWOT Analysis, 2012).

American Airlines Company

American Airlines is one of the largest airliners across the globe. The entity has the capacity of offering employment opportunities to more than 100,000 employees as well maximizing the opportunities by approximately 650 planes (PR, 2013). American Airlines travel routes include the United States and Caribbean as well as operating in the context of extensive routes between the U.S., Mexico, Asia, Canada, South America, and Europe. The development of the American Airlines has benefited in relation to the integration of information systems and technology with the aim of enhancing the growth and profitability levels through effective and efficient application of the IT and direct contributions.

This relates to the implementation of the SABRE computerized reservation system which is the world's largest privately owned real-time computer network. Another essential information system essential for the development of the American Airlines includes the integration of the yield management system as well as advantages program (Chapter 6, 2013). These systems have focused on the transformation of the entity towards the achievement of the goals and objectives.

Environmental Background:

In the last 2 decades, the airline industry in the case of the United States has experienced both long-standing and novel hurdles and challenges. These include fuel price volatility, limits to organic growth, slow demand in relation to the air travel, and global pressure for the aspect of expansion. It is ideal to note that both LCCs and legacy airlines have adopted mechanisms such as bankruptcies, reorganizations, spin-offs, and new pricing strategies for the purposes of handling such challenges in the previous decade. The most commonly applied remedy towards addressing the persistence in the ailing of the domestic airline industry is consolidation among the airlines (Business & Industry News, 2013). It is ideal to note the existence of six major mergers in the recent years in the case of the United States' airline industry.

These mergers include Us Airways and America West Airlines (2005); Republic Airlines and Midwest Airlines (2009); Delta Airlines and Northwest Airlines (2008); United Airlines and Continental Airlines (2010); Republic Airlines and Frontier Airlines (2009); and Southwest Airlines and AirTran Airways. It is ideal to note that the six mergers were successful because of the essence of going through without the interference of the federal antitrust authorizes. The main objectives of the previous mergers in the case of the United States airline industry include the need to increase the route or destination coverage, minimize the cost of operations, and increase the volume of revenues and profits at the end of the financial year.

In the context of 2012, the United States Airways announced a substantive move to take over Americans Airlines currently experiencing bankruptcy proceedings. The merger aims to combine the fourth and the fifth largest airlines in the United States in the form of American Airlines and U.S. Airways respectively. This would make the merger between the U.S. Airways-American the largest in the United States with a massive share of about 20 and above percent. This is a great share in comparison to other entities in the form of Southwest (18%), United Continental (17%), and Delta (16%). This is an indication that the major four entities within the context of the U.S. airline industry would have the ability to control approximately 70% of the national market.

As a combined airline, U.S. Airways-American will focus on the transformation of value to the stakeholders and shareholders with the aim of achieving the best outcome for the consumers and employees. It will also have an opportunity to increase the network to match the needs and preferences of the consumers as well as destinations. There is also increased ability of the entity to integrate modern technologies with ease as well as improve the value of the products and services with the aim of enhancing the competitive advantage in the market and industry of operation.

Case Situation:

The merger between the U.S. Airways-American will be the largest in the United States with a massive share of about 20 and above percent. This is a great share in comparison to other entities in the form of Southwest (18%), United Continental (17%), and Delta (16%). Unlike in the case of the previous mergers, the merger between the U.S. Airways and American Airlines will result into better deals for both employees working for the firms because of the massive support of the unions representing workers in the United States (Tully, 2013).

Despite this support by the relevant unions in championing for the needs of the workers, the merger faces antitrust suits unlike the previous mergers that were smooth and successful without the influence of the federal regulation. U.S. Airways-American Airlines faces opposition in relation to the aspect of an antitrust lawsuit filed in the context of San Francisco court. According to the critics, the merger would hurt the consumers because of the tendency or likelihood of driving up the airfares. The suit is filed on behalf of approximately 40 consumers claiming possibilities of the influence of the merger on the development of the value of the services as well as fares.

Like the previous mergers, the merger will be vital in improving the value of the products and services of the new entities with the aim of maximizing the revenues and profit levels at the end of the fiscal year. The new merger will take the leading role in the industry because of the massive size thus an opportunity for the companies to improve their value and destinations in satisfying the needs and preference of the consumers. It is ideal to note that the integration between Delta and Northwest Airlines was relatively smooth thus an expression of great and quality intention of the merger as opposed to the case of the United Airlines and the Continental Airlines. In the former case, there were elements of glitches and upset consumers because of the size and command.

The previous mergers had a sizeable impact on the consumers because of the integration of the reservation system. According to the U.S. Airways and American Airlines, the merger would be moved to the former because of the larger capacity and the ability to minimize the amount of extensive training with the aim of familiarizing the fewer employees of the latter with the new system. This tendency has the possibility of increasing the volume of fares to the consumers thus ability to reduce the value and satisfaction of the needs and preferences due to increase in the cost of travelling.

Strategic Issues:

There are various strategic issues that might arise because of the integration of the American-U.S. Airways. One of the strategic issues in relation to the merger is the decrease in the level of competition. The proposed merger will have the ability to reduce competition for 1,665 flight choices thus affecting approximately 53 million passengers. The size of the new entity will be above the current operators in the market and industry thus the tendency of eliminating the trust of effective, free, and fair treatment and competition in relation to the United States airline industry (Tully, 2013). Other critical or strategic issues include labor unions and how they will manage to take the responsibilities of transferring employees over, U.S. Airways are leaving the Star alliance to join One World, employees that could lose their jobs.

Another proposed issue in relation to the proposed merger of the U.S. Airways and American Airlines in the United States airline industry is the possibility of the merged network to increase control over connecting and inter-regional services in the U.S. It is ideal to note that the increase in the volume of operations in relation to the proposed merger has implications for control over connecting service and intra-regional service. It is also critical to understand that the proposed merger would have two key points in the form of LAX and PHX (Big Deal, 2013). Another issue is the substantial percentage of overlap markets would be monopolized or near-monopolized by the merged carrier. It is believed that about 50% of the overlap routes under the influence of the proposed merger would be affected by the monopolistic market structure.

It is also believed that the proposed merger would increase the probability of adverse unilateral and coordinated effects. This is because of the influence of the fare increases following Delta-Northwest and United-Continental mergers on the proposed merger between the fourth and fifth largest entities in the context of the United States airline industry. Another strategic issue or problem in relation to the proposed merger between U.S. Airways and American Airlines is the potential harm to the smaller communities through reduction of flight frequencies as well as downgrading of the equipment and eventual loss of the services (Broderick, 2013).

Case Overview:

This case study focuses on addressing four critical questions in relation to the proposed merger between U.S. Airways and the American Airlines. The first essential question of the scope of the research exercise is examining the role of the unions in keeping the workers jobs and seniority standards. This is essential in understanding how the proposed merger would contribute towards improved value, products, and services for the shareholders and stakeholders within the industry. The second question of interest is the effect of the proposed merger on the route structure. Thirdly, the case will focus on examining the headquarters of the proposed merger with reference to the two critical locations: Dallas, TX or Phoenix, Az. Finally, the case will evaluate the implication of the proposed merger on the travel rates and number of overall flights in the context of the airline industry in the United States.

Results:

How will unions keep workers jobs and seniority standard?

The Transport Workers Union (TWU) and International Association of Machinists agreed to the joint representation of the mechanics and ground workers in the context of the new carrier following the conclusion of the merger expected towards the end of 2013. According to the unions, the partnership will focus on the representation of about 30,000 employees thus the formation of the TWU/IAM Employee Association. The unions also indicate the need for the government regulators to hold a union representation election among the affected work groups. In the current state, TWU represents the mechanics, fleet services workers, and store clerks at America. IAM offers adequate representation to the same group of workers at the U.S. Airways Company. The agreement is essential in utilizing the strength and resources on behalf of the members of the new American Airlines. The agreements are also vital in the protection of the members' representation, seniority, and pensions as well as ensuring that the members of the union are rewarded by the merger (International Business, 2013).