Us Airways Merger Summary
American Airlines – US Airways Merger
Executive Summary
The big news of the past few weeks in the travel field was the proposed and almost completed merger of AMR, the parent of American Airlines and US Airways. The merger creates the world’s biggest airline in the world. The recent injunction filed by the US Attorney General with the backing of the Government created a problem for the Airlines put a big question mark on whether the deal will go through or not. This white paper refutes the points stated by the Department of Justice as the basis of their argument to block this merger. Creation of this merger will benefit the passengers as well as the airline industry.
Situation
As you see in the table above, AMR (parent company …show more content…
By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate, rather than compete, on price and service. Coordination becomes easier as the number of major airlines dwindles and their business models converge. If not stopped, the merger would likely substantially enhance the ability of the industry to coordinate on fares, ancillary fees, and service reductions by creating, in the words of US Airways executives, a “Level Big 3”of network carriers, each with similar sizes, costs, and …show more content…
One part is, as the DOJ correctly pointed out, that US Airways does have hubs that are relatively weak in terms of volumetric (daily passengers worth of) O&D, though they are strong O&D bases (from a yield perspective)in their own right. But the second part is US Airways offers the Advantage Fares because it can; it has lower unit costs (cost per available seat mile – or CASM) than its legacy carrier peers. This is what truly enables US Airways to offer these Advantage Fares as a way of filling seats that would otherwise fly out empty – it is also reflective of a philosophy that empty seats equal lost revenue, something unique to US Airways amongst legacy carriers. Now all details surrounding the US Airways – American merger indicate that CASM at the new American will certainly rise from current US Airways levels, but critically will still be lower than those of Delta and United. According to an investor presentation made by American, it projects that after all of its bankruptcy contracts are written in place, it will have non-fuel CASM of 8.4 cents, significantly below that of United and even with that of
Executive Summary
The big news of the past few weeks in the travel field was the proposed and almost completed merger of AMR, the parent of American Airlines and US Airways. The merger creates the world’s biggest airline in the world. The recent injunction filed by the US Attorney General with the backing of the Government created a problem for the Airlines put a big question mark on whether the deal will go through or not. This white paper refutes the points stated by the Department of Justice as the basis of their argument to block this merger. Creation of this merger will benefit the passengers as well as the airline industry.
Situation
As you see in the table above, AMR (parent company …show more content…
By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate, rather than compete, on price and service. Coordination becomes easier as the number of major airlines dwindles and their business models converge. If not stopped, the merger would likely substantially enhance the ability of the industry to coordinate on fares, ancillary fees, and service reductions by creating, in the words of US Airways executives, a “Level Big 3”of network carriers, each with similar sizes, costs, and …show more content…
One part is, as the DOJ correctly pointed out, that US Airways does have hubs that are relatively weak in terms of volumetric (daily passengers worth of) O&D, though they are strong O&D bases (from a yield perspective)in their own right. But the second part is US Airways offers the Advantage Fares because it can; it has lower unit costs (cost per available seat mile – or CASM) than its legacy carrier peers. This is what truly enables US Airways to offer these Advantage Fares as a way of filling seats that would otherwise fly out empty – it is also reflective of a philosophy that empty seats equal lost revenue, something unique to US Airways amongst legacy carriers. Now all details surrounding the US Airways – American merger indicate that CASM at the new American will certainly rise from current US Airways levels, but critically will still be lower than those of Delta and United. According to an investor presentation made by American, it projects that after all of its bankruptcy contracts are written in place, it will have non-fuel CASM of 8.4 cents, significantly below that of United and even with that of