AMR Corp., the bankrupt parent of American Airlines, last week said that it signed a nondisclosure agreement with US Airways Group Inc. to explore a possible merger of the two leading U.S. airlines.
In addition, over the weekend, IAG—the owner of U.K.’s British Airways and Spain’s Iberia—said that it also signed a nondisclosure pact with American to explore a stake in the U.S. carrier.
A nondisclosure agreement allows companies to share confidential business and financial information and not speak with third parties regarding terms of a possible merger. But the agreement does not guarantee a merger.
A merger between American and US Airways would create an airline with more than $37 billion in annual revenues, which would rival United Continental, currently the biggest carrier in the world.
American was once the country’s biggest airline, but recent consolidation—which created current leaders United Continental and Delta Air Lines Inc.—have put American at a disadvantage.
IAG’s agreement with American was also expected, as British Airways and Iberia had long been codeshare partners with American. “We are interested in looking at taking a possible stake in a restructured American if they welcome it and if it will bring benefit to our shareholders,” an IAG spokesperson told Reuters in an interview.
The Fort Worth, Texas-based AMR went into bankruptcy protection late last year, and it had hoped to emerge as an independent airline, however, creditors had suggested that American explore a merger as an option to stay competitive with its bigger rivals.
What Does It Mean?
For U.S. customers of American and US Airways, real change won’t come for months—if not years—should a merger occur.
The U.S. Department of Justice and the Department of Transportation would need to approve AMR’s emergence from bankruptcy, as well as any merger between U.S. carriers.
Consolidation in the airline industry has caused fares to rise, although a portion of the rise could be attributed to higher fuel costs. Should further consolidation occur, it would likely serve as impetus for airlines to continue raising fares.
Customers with frequent flyer miles with either of the airlines will likely be able to keep their miles with the consolidated airline, the only difference being that they have more flight options.
American is part of the One World airline alliance, while US Airways is part of Star Alliance. US Airways would probably leave Star Alliance and the combined carrier will participate in One World, which British and Iberia below to, along with Qantas and Cathay Pacific.
American has a larger route network globally than US Airways, particularly in Latin America where American is a major player, but US Airways serves a greater number of smaller U.S. cities. Customers of both airlines should see increased route coverage should a merger be consummated.
American’s key hubs are in New York-JFK, Dallas-Fort Worth, Los Angeles, and Miami. US Airway’s main hubs are located in Phoenix, Philadelphia, and Charlotte, N.C.
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