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
7. Air France
8. China Southern
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.