CHARLOTTE, N.C. -- US Airways and American Airlines are hammering out the details of a potential merger, leaving employees, travelers and Charlotte residents waiting to see whether the companies combine.
Many analysts believe a deal is fast approaching.
“What we’re seeing emerge in the public realm is telling me this is real, and it’s going to occur sooner rather than later,” travel industry analyst Henry Harteveldt said.
Hanging in the balance is US Airways CEO Doug Parker’s plan to build the nation’s biggest airline – and, potentially, the future of Charlotte Douglas International Airport, which is US Airways’ largest hub. Although city leaders and some aviation experts believe the hub is safe, others have said a merger could eventually shift traffic to the new company’s other hubs.
The merger has been a topic of speculation from the day American’s parent, AMR Corp., filed for Chapter 11 bankruptcy in 2011. Recent weeks have seen many rumored merger dates: the end of 2012. Mid-January. The start of this week. All have slipped past with no news. But word leaking out of the negotiations seems to indicate the talks are in their final stages.
“I like to joke the three most important issues in airline mergers are what are we going to call it, where’s it going to be located, and who’s going to run it,” said Bob Mann, head of aviation consulting firm R.W. Mann & Co. The new carrier is set to be called American Airlines and be headquartered in Fort Worth, Texas. That leaves the leadership question. “I think we’re down to the real ego issue,” Mann said.
Tom Horton, the chief executive of American Airlines parent company AMR Corp., is in talks to become chairman of the merged company, The Wall Street Journal reported this week. That could resolve one of the last remaining roadblocks to a deal and give Parker the CEO job. Horton said for months he preferred to see American emerge from bankruptcy as a stand-alone company.
Also in the balance: more than 100,000 jobs between the two companies, including more than 7,100 in Charlotte.
US Airways pilots are voting on whether to accept a transition agreement that would take effect when a merger occurs, and their deadline is next Friday. Capt. James Ray, spokesman for the U.S. Airline Pilots Association, said the potential merger is a hot conversation topic.
“It’s certainly the subject matter of the day, by all means,” Ray said. “There’s a lot of pilots debating the good and the bad.” For instance, the merger plan would give pilots a raise but also leave them paying more for benefits.
US Airways declined to comment for this story. The two companies are still negotiating under a nondisclosure agreement.
Still, American Airlines retains the exclusive right to present a reorganization plan to a bankruptcy judge. The company could try to emerge on its own and pursue a merger later.
“I think they’ll run the clock as long as they control it,” Mann said. “I wouldn’t bet against them presenting an independent plan and arguing to approve it.”
Charlotte hub’s future
A merger would leave Charlotte as the second-largest hub in the nation’s biggest airline, with more than 600 flights a day operated by the new American Airlines. The city would be second only to Dallas/Fort Worth, which has more than 750 daily American Airlines flights.
Having a major airport hub brings Charlotte hundreds more flights a day than a city its size would otherwise have, including direct flights to 142 destinations. Companies such as Electrolux and Chiquita Brands have cited the busy hub as motivation to relocate headquarters to Charlotte in recent years.
Parker has said that Charlotte Douglas would see the number of daily flights increase after a merger, possibly to more than 700. Charlotte aviation director Jerry Orr has said being a hub for a bigger airline with more international routes would help the city expand air service. City leaders and the business community haven’t publicly expressed concern. And many analysts think Charlotte’s hub status is safe. But not everyone is so optimistic.
“It seems like the talk is extra rosy,” said Adie Tomer, a researcher for the Brookings Institution who’s studied aviation patterns. He points to other cities that have seen drastic cuts after a merger, such as Pittsburgh (former US Airways hub), St. Louis (former TWA/American hub) and Cincinnati (former Delta hub). “The talk was consistently rosy there, too,” Tomer said.
Tomer said Charlotte is the only major airport where a majority of passengers aren’t local. In fact, he said, Charlotte Douglas has the highest percentage of connecting traffic of any major hub.
“That in general puts up warning lights for us,” Tomer said. Since US Airways operates about 90 percent of the daily flights, any shift of traffic to other hubs could have an outsize impact at Charlotte Douglas.
Hub airports rely on a mix of connecting passengers and local passengers. The most recent available numbers, from the third quarter of 2012, show that about 23 percent of travelers at Charlotte Douglas were local, meaning they started or ended their trips here. The rest, just more than 77 percent, were connecting traffic, dashing through the airport from one plane to another.
Still, analysts say the merged American Airlines would need a Southeast hub to counter Delta’s at Atlanta. Miami is too far south and Philadelphia is too far north, leaving Charlotte as the ideal connecting hub for the Southeast, the thinking goes. And with the lowest cost per passenger of any major hub, Charlotte is widely viewed as an efficient and profitable airport.
US Airways’ leases on gates and other airport facilities run through 2016, officials at Charlotte Douglas said.
Federal data show US Airways and American have little overlap on the major routes to and from Charlotte. The only routes in which US Airways is the highest-priced carrier and American is the lowest-priced carrier are Charlotte-New York and Chicago-Charlotte. On the majority of routes, Delta or AirTran offer the lowest-priced alternative (and thus major competition) to US Airways.
Still, even if US Airways keeps most of its flights at Charlotte Douglas, international service could be at risk. If it makes more sense to connect European passengers through Philadelphia or Caribbean fliers through Miami in the new route structures, some flights could shift there, analysts say. Foreign carriers that are partners with US Airways in the Star Alliance, Lufthansa and Air Canada, also might choose not to fly to Charlotte anymore, since the new American Airlines would stay in the oneworld alliance. Lufthansa flies direct from Charlotte to Munich.
Who should run the company?
Parker, a longtime advocate of industry consolidation, now appears poised to become chief executive of the new American Airlines – if he can pull the deal off. He engineered the US Airways-America West merger in 2005. Despite being CEO of the smaller company, America West, Parker and his leadership team took over the new US Airways and have run it since.
Most analysts agree that, if a merger happens, Parker will likely become CEO of American Airlines. In a crucial move, he’s won the support of American’s biggest unions, some of his own workers, and many on Wall Street.
“We’ve had a hard time finding investors in favor of AMR (management), hence our conclusion is that a consensus is in favor of an US Airways led (management) team running the merged airline,” Dan McKenzie, an analyst for Buckingham Research Group, wrote this week.
Analysts point to Parker’s track record at US Airways, which has maintained profitability for the last few years by keeping capacity and costs down. During the same time, American Airlines lost billions, as well as its spot as the largest U.S. carrier, slipping to third.
Last year, Parker reached tentative terms for agreements with American Airlines’ three major unions, undercutting Horton. The unions have maintained that American Airlines must change its leadership, in part because American has long had what is regarded as one of the most toxic relationships with its employees in the airline industry.
“The unions have made it very clear that they do not want Mr. Horton on the premises,” Harteveldt, the travel analyst, said.
Labor relations at Tempe, Ariz.-based US Airways have been far from harmonious. The company hasn’t managed to integrate its pilot and flight attendant work groups after the America West merger, leading to years of messy legal wrangling.
Despite that, some US Airways workers have endorsed Parker to head a combined company, including its flight attendants union last week.
“Doug Parker’s plan for a US Airways/American merger provides the best opportunities for US Airways Flight Attendants,” said the leaders of the company’s flight attendant union in a joint statement last week.
The chances for Charlotte growing as an airport go up if Parker runs the combined airline, Mann, of aviation consulting firm R.W. Mann & Co., said. Under Parker, US Airways has made money in Charlotte, and the CEO frequently praises the airport.
“I have no doubt (Charlotte Douglas) would continue to be a big spot on the network,” Mann said.