American and US Airways to Join Forces (Finally)

The merger between American and US Airways creates the world’s biggest airline. Except, well, not necessarily…

February 14, 2013

SO IT’S REALLY GOING TO HAPPEN: American Airlines and US Airways are joining forces. The combined entity will fly under the American name, and will be, at least by some measure, the world’s largest airline. The merger had been in the works for months. After an excruciatingly long period of boardroom haggling and negotiations, it was finally made official on Valentine’s Day.

The timing would seem auspicious, but airline mergers are often stormy marriages, at least at the outset, as employee groups begin to integrate and company cultures clash.

Mergers are particularly stressful for pilots, whose seniority lists need to be combined in a fashion that doesn’t leave one group permanently hating the other. Seniority is everything to pilots; no other facet of our employment is more important. Our salaries, our schedules, and our long term career advancement depend almost entirely on our “number,” as we call it. We are fiercely protective of that number, and it’s rarely easy coming up with a blending formula that is seen as equitable by both sides, especially in a case where one airline’s pilots are, overall, older and more senior than the other’s. Depending on the method of integration, pilots who were relatively senior can suddenly find themselves comparatively junior, leading to resentment that can can linger for years.

Occasionally no agreement is reached, and arbitrators are brought in to legally enforce their own formula, as happened when US Airways and America West linked up a few years ago. Hostility among the ranks at US Airways remains intense.

Nominally, anyway, the unions at AA and US Airways have reached a basic agreement on how this will happen, but believe me neither side spent Wednesday buying chocolates and roses for the other. We’ll see how it all unfolds. Best-case scenario would be something along the lines of the 2008 Delta-Northwest merger, which, while not without its storm clouds and lingering resentments, went about as smoothly as any airline merger in history.

Air travelers, meanwhile, are curious what the merger will mean in terms of routes and fares. Almost always when airlines consolidate, the prognostications speak in dire tones about monopolies, rising ticket prices, and a further decline in customer service standards.

Mostly this is bunk, though it’s worth pointing out that prior to 2008 there were six major international US carriers. Now there are three, which certainly limits options for travelers headed to Europe, Asia, and beyond. Still, even between three competing giants there is still plenty of healthy competition — not to mention travelers will continue to have their pick among dozens of top-tier foreign airlines that fly to and from the United States.

Fares may increase slightly in certain markets, but there is relatively little overlap in route structures of AA and US, and they have no shared hubs. From the carriers’ point of view, this is part of what made their merger strategically attractive in the first place. Their networks don’t create monopolies so much as they complement each other. US Airways, for example, has a reasonably substantial European network, but very little presence in Latin America, where American is gigantesco.

This is how it has worked in other major mergers as well: When Pan Am and National Airlines teamed up in 1980, it allowed the former, whose network was concentrated almost solely on routes overseas, to establish itself domestically as well. At the time of its merger with Delta, Northwest had a large presence in Asia, but relatively few European routes. Delta, was weak in the Pacific but had a strong transatlantic presence. United was a major player in the Pacific; Continental was massive in Europe and Latin America. Etc.

I’m a little bit sad to see the US Airways name disappear. I’m old enough to remember when the company was still called Allegheny Airlines and didn’t fly west of Ohio. As an adolescent airplane buff, I’d sit in the old observation deck at Boston-Logan, watching Allegheny’s smoky old DC-9s and BAC One-Elevens roaring off to such exotic destinations as Albany, or maybe even Buffalo.

(One thing I shouldn’t be sad to see disappear is US Airways’ ugly paint job. Trouble is, the one replacing it is even uglier.)

AA/US Airways is presumably the last of the long-awaited mega-mergers that industry experts have been predicting ever since September 11th, 2001. Consolidation took a bit longer than many thought it would, but eventually eventually it did happen. Six large airlines have become three very large airlines.

Which of those three is in fact the biggest of the big, though, is open to debate. Will the US/AA combo truly be “the world’s largest airline, as the media have been describing it, almost without exception? My answer is no, it’s not, but it depends how you measure it.

And airline’s size can be gauged three ways:

The easiest method is just to tally up the number of passengers carried in a year. The trouble is, this neglects the number of cities an airline serves, how far it flies, and the size of its fleet.

A second measurement relies on something known as available seat-mile (ASM). This is the total number of seats an airline has for sale, multiplied by the total number of kilometers it flies. (ASMs are sometimes called ASKs, using kilometers in lieu of miles.) A 777 flying from New York to London is good for approximately 750,000 ASMs, a 737 going from LAX to San Francisco about 45,000. Larger planes on longer routes, in other words, are worth more than shorter planes on shorter routes, but an airline can make up the difference through higher frequencies. The problem with ASMs is that they include empty seats. A four-hundred-seat 747 scores higher than a two-hundred-seat 767 over the same route, but what if the latter is full while the 747 is empty?

A third and perhaps the most accurate metric is the revenue passenger-mile, or RPM. RPMs are basically ASMs corrected for occupancy, or “load factor” as it’s called in the business. One passenger traveling one mile equals one RPM. (As with ASMs, kilometers can be used instead of miles, and the term becomes RPK.)

Using the first method, if we combine the number of passengers flown annually by American Airlines with those flown by US Airways (relying on the latest available full-year data), the result is not the biggest airline in the world, but rather the second-biggest, ahead of Southwest but slightly behind Delta.

Using the third method, the new AA again finishes second, again behind Delta. United takes third and Southwest moves to fourth place.

It’s only when using that second technique, of ASMs, that AA comes out on top.

But I don’t like ASMs. I much prefer method three, RPMs. This is the fairest gauge, I feel, because it takes in everything: fleet size and scope of network, passenger totals, as well as occupancy and revenue.

Here, then, are the ten largest airlines in the world, ranked by RPM (RPK):

1. Delta Air Lines
2. American Airlines (includes US Airways)
3. United Airlines
4. Southwest Airlines
5. Emirates
6. Lufthansa
7. Air France
8. China Southern
9. Qantas
10. Cathay Pacific

(Note: the list deducts KLM’s data from that of Air France. The companies merged in 2004 and are often spoken of together, but they have kept separate operational structures, with independent fleets and employee groups.)

As we go down the list, those measuring techniques can make a big difference. Emirates is now the planet’s fifth biggest carrier in RPMs, yet fails to crack the top twenty in passengers. Ryanair holds sixth place in passengers but doesn’t make the top twenty-five in RPMs.

Personally, I’m less impressed by those three at the top than I am at number four. Is it not amazing that Southwest Airlines — a carrier without a single route beyond U.S. borders — is the number four airline on earth? By the same token, how can we not marvel at Emirates, which operates predominately long-haul, with virtually no high-frequency routes? (Like I said, RPMs are the equalizer.)

It’s tempting to think of the biggest airline as the one with the most aircraft, but capacity differences make this reasoning unfair. American Eagle has more planes than half the names on the top ten list, but every one of them is a regional jet. For the record, AA/US wins, followed by Delta and United. China Southern’s 370 aircraft represent the largest fleet outside the United States. The numbers obviously change as planes are bought, sold, mothballed, and retired, but as with RPMs and passenger numbers, the field looks pretty much the same year to year.

The largest all-widebody carriers are Emirates, Cathay Pacific, and Singapore Airlines. The smallest plane in these airlines’ fleets is the Airbus A330.

Currently, fewer than a dozen airlines worldwide are able to claim membership in what I call the “Six Continent Club”—providing scheduled service to at least one destination in each of North America, South America, Europe, Asia, Africa, and Australia. At the moment, Delta and United are the U.S. representatives, alongside Emirates, British Airways, South African Airways, Singapore Airlines, Qatar Airways, Korean Air, and Etihad Airways.

In terms of total number of countries served, Turkish Airlines is the winner. Turkish is a far bigger player than many people realize. Its service is top notch, and its network now extends to 94 countries – more than any other airline in the world.

 

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23 Responses to “American and US Airways to Join Forces (Finally)”
  1. Simon says:

    I’d be much more cautious about airline mergers in the US. All you say, Patrick, about complementing route structures and schedules and the fact that prices will not necessarily increase because of airline mergers is certainly true. But it only holds as long as there is a functioning market. Take that market away and passengers will suffer severely from lack of competition.

    Is now just three international carriers enough to have a functioning market in the US? You be the judge. The US cellular network market is basically a duopoly with customer dissatisfaction huge and growing. It appears four large carriers are obviously not enough to create a functioning market in the cellular space. Will three suffice for aviation?

    • Chad H says:

      Except you don’t really have 3 international airlines to choose from, you usually have at least 4 when including international carriers.

      This is particularly important to consider when you’re flying to an EU country. The EU has some tough consumer protection rules regarding delayed and cancelled flights… But you only get the protection of those laws if you’re on a EU flight, or a flight leaving the EU (So if you fly to the EU on a Delta aircraft, you’re SOL for the inbound leg).

  2. Simon says:

    And one more thing. You spend a significant amount of your article trying to decipher who’s the biggest airline. For a non-Texan you’re surprisingly obsessed with size. ;) How about less concern with metrics of size and instead more concern with quality?

    Your top four airlines might be huge, but in terms of customer care or service quality they’re pretty much as low as you can get in the developed world. There are much smaller carriers out there that do a terrific job despite the fact they don’t come close to making your list. ANA in Japan or Swiss in Europe (Swiss by the way also makes a lot of money, something that can’t be said of any of your top four) are good examples.

    I would have appreciated more focus on why present-day US aviation only seems to be capable of big, but definitely not good. Looking forward to you tackling that one next time.

    • Patrick says:

      Well, for what it’s worth, the comparatively poor service standards of US carriers is something I’ve written about many, many times in my columns at Salon.

      I’m not sure the AA/US merger will change things one way or the other.

      • Eric says:

        I think it’s safe to say that the lowest common denominator always will prevail.. When UA and continental merged, Mileage Plus — the clearly inferior system — took over my OnePass miles and immediately assigned them an expiration date. Continental promptly stopped serving meals on flights. The chronically on-time Continental fights adopted United’s late schedules. Basically United got the routes, and Continental ceased to exist.

        With AA and USAir it will be a similar notion. US Airways baggage handling (or lack thereof) will rule the day. Flyers will be stuck on AAs 50-year-old MD80s. The flight attendants will have to rouchambeau to determine who will be most surly — could go either way. America West, which was once a fantastic airline, will have completed the descent into the inferno as it first pulled the coup of purchasing US Airways and now, an even bigger coup — AA.

        Thank god for Cathay and Singapore. And Alaska — they’re sill decent.

        • Eric says:

          Although I hear rumors that Ryanair is looking into purchasing Alaska and UA.

          • Chuck says:

            That’s a nice rumor about Ryanair buying UA and Alaska, but it would not be legal under current US laws, which I don’t see changing any time soon. Currently no foreign airline can have majority ownership of a US airline, or more than 25% of the voting stock I believe. If it was possible, Virgin America would be a subsidiary of the Virgin Air Group, not an independent company.

    • Ja ck says:

      You mention Patrick’s top 4 as having service as low as it gets, and I’m curious why you place Southwest in that category. Quality service is what we’re renowned for.

  3. Piper says:

    You’ve written a number of times about the seniority system, and it really does sound miserable. Especially aspects like changing airlines putting you back to the bottom of the heap. In my business, a company with a policy like that would have a very hard time finding employees. Seems to me an airline would have better luck attracting (or poaching) pilots if they let applicants bring their seniority with them, instead of making them mop the floors for ten years.

    Is the seniority system used everywhere in the world? What’s the point of it? Is there no other way… something more equitable?

    • Patrick says:

      >> Especially aspects like changing airlines putting you back to the bottom of the heap.< <

      Most people aren't aware of this. It's true: when a pilot moves from one airline to another, he goes to the very bottom of the seniority list, as a probationary first officer, and starts over. There are no exceptions to this, not matter how experienced or senior you are.

      >> Is the seniority system used everywhere in the world?<<

      Certain aspects of the US-style airline seniority system are used overseas, but there are big differences.

  4. Peter says:

    Patrick, regarding the seniority system, and how much of a nightmare it sounds like, whose idea was/is it? Is your opinion on it shared by the majority of pilots, or do those at the top of the list rather like it? What is the pilot’s union’s position on this system, versus that of the airlines?

    • Michael Lloyd says:

      Airline pilot seniority systems are difficult to fathom and even harder to explain. Nothing is really based on a meritocracy. You are simply a number whose opportunities and position are dictated by the movement behind you. More new hires generally means movement upwards. Given a magic wand, creating a national pilot seniority list would be an option. But each airline develops its own culture and those cultures are very hard to change. Based on the difficulties in integrating American West pilots with US Air pilots, creating an acceptable merging ratio with American Airlines might be very difficult.

      • Gene says:

        >> But each airline develops its own culture and those cultures are very hard to change.<<

        And this goes far beyond the flight deck. Dad was a veteran Western Airlines CSR (Customer Service Representative) when they merged with Delta in (IIRC) 1987. He said at the time that if he had been more than a year from retirement, he would have quit as the environment for former WAL employees was so toxic. I seem to remember at least one physical fight in a cockpit before the passengers boarded at LAX. There were cases of personal vehicle damage (both ways). He went from enjoying going to work to having to drag himself there each morning.

        Best of luck to both sides in this merger.

  5. Michael says:

    I hope Patrick will write about the next possible consolidation movement: the regionals. Whipsawing one regional against others to get the lowest bid makes me wonder if we won’t see a movement to reduce the numbers.

  6. Vincent "Vinny 'da Noggin" Insania says:

    Patrick doesn’t discuss the various and myriad feeder lines that these two mega-behemoths own/operate/otherwise entangled with. What’s to become of all that mess? Is there “significant” (whatever that is) overlap? Potential stifling of competition? Screwed again, consumers? Massive layoffs of deadenders…back to Wal Mart? Nobody in media is discussing this and maybe that’s the plan. Anything to avoid considering the promise of high speed distance rail and many DVDs across and up and down the west and midwest? People just don’t know and they’re scared.

    Will there still be an Admirals Club at DFW?

  7. Elizabeth Matheson says:

    I’m laughing all the way to the bank. I bought AA stock when it was $0.33 a share!

  8. Marignac says:

    It appears there are far too many folks aspiring to become pilot, when this seniority scheme does prevail. But there seems to be worse: self-employed/self contracting pilots. Ryanair is doing this and of course quite a number of low-cost- or feeding regional airlines have adopted this scheme. Some young pilots even pay up to 4KEUR to be able to fly a season to clock hours. At Ryanair a pilot on FR’s payroll gets a decent pay. But it appears there are only very few pilots on the payroll since 70% of the pilots are self-contractors. Source of this are pprune.net discussions, so I don’t have first hand knowledge yet.

  9. Dan says:

    With the 777 being twice as big going ten times the distance, seems like there is a decimal point error on your 777 to London v. 737 to San Francisco example…otherwise, I really enjoy your work.

  10. bruce says:

    i flew Mohawk (oops, USAir) four legs in the two weeks before the announcement. they were hawking membership in their affinity card, with zillions of linked miles, like there was no tomorrow. I can only assume that the size of the FF program figured into the valuation assigned to USAir in the share swap – so the more members, the better the USAir shareholders make out in the merger.

  11. Jim Wattengel says:

    UPS is a large airline based on number of airplanes with 569 (own plus chartered)in operation.

    But of course zero RPM’s.

  12. Randall Cameron says:

    Re: competition, it has always been a problem for cities where only one major has a hub. Few flights to Minneapolis are cheap or convenient, because Northwest pretty much “owns” all the routes.
    Re: Turkish and “top-notch service” – that may be true on long-haul routes. We have only flown their narrow-bodies between ME and Europe. Service quality varies hugely according to the cabin crew quality, which varies according to the route and aircraft. The food is really good. Otherwise, we rate them about like EgyptAir, and a far cry from Emirates.

  13. Rod says:

    Re Competition —- This discussion illustrates the reality that (The Myth aside)capitalism and free enterprise are antithetical. When the US federal government deregulated the airline industry, this is where things headed, just as surely as a dropped anvil heads earthward.

    Privately owned infrastructure (air, rail, road, communication, electricity, whatever) ends up an oligopoly, as Simon points out. Because They’ve got it, You need it, and so they have you by the short hairs.

    Re the Seniority System —- Maybe the reason there doesn’t seem to be an alternative is that all potential alternatives such as a “meritocracy” involve the employer gauging the employee’s merits.
    I can understand why pilots might ultimately prefer the thrills’n'spills ride on the seniority list to having Boss Hogg using his own criteria.

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