Airline Mega-Mergers: 'Good, Bad And Ugly' The proposed marriage of American Airlines and US Airways is likely the last in a series of industry mega-mergers. But history suggests combining two big carriers isn't easy. Meshing cultures and dealing with pilot seniority add to the complexity of combining airlines, analysts say.
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Airline Mega-Mergers: 'Good, Bad And Ugly'

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Airline Mega-Mergers: 'Good, Bad And Ugly'

Airline Mega-Mergers: 'Good, Bad And Ugly'

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This is likely the last in a series of airline megamergers. The number of major U.S. carriers is now down to just four. And history shows this kind of forced marriage could be rocky at first.

NPR's Wendy Kaufman has that story.

WENDY KAUFMAN, BYLINE: Since the year 2000, there have been five airline mergers worth noting.

HENRY HARTEVELDT: The history of airline mergers in the U.S. is good, bad, and ugly.

KAUFMAN: That's Henry Harteveldt, a travel industry analyst at the consulting firm Hudson Crossing. He and many others point to the 2008 union of Delta and Northwest as the best merger in recent memory.

HARTEVELDT: Delta and Northwest had already been cooperating on a number of different issues. They were members of the same airline alliance, they cooperated on certain international flying, they had a complementary route network, they had similar cultures, they had a similar approach to doing business.

KAUFMAN: Delta hired a former head of Northwest to lead the combined airline. And Daniel Kasper, a consultant at Compass Lexecon, says Delta did something else that was very smart. Pilots from both airlines wanted a deal and Delta told them it wouldn't happen unless they could agree in advance on how they would merge their seniority lists.

DANIEL KASPER: For pilots, seniority is critical. It defines what airplanes they fly, what schedules they fly, and ultimately how much money they make.

KAUFMAN: It also determines who loses their job if the new airline downsizes. Integrating pilot seniority lists is one of the most difficult aspects of airline merges. For example, roughly eight years have passed since U.S. Airways merged with America West and the airline is still operating with two separate sets of pilots who won't fly together. Pilot integration has also been an issue in the United-Continental merger. And Kasper says other parts of that union have been challenging, too.

KASPER: That was a really complex one to begin with. You know, you had two very large well-established airlines and certainly there was no love lost between Continental and United to begin with.

KAUFMAN: Their cultures were very different, as was the passenger experience. Analyst Harteveldt's assessment of that merger is harsh. He says, Continental had been known for good customer service but United's new leadership, which by the way, came primarily from Continental, squandered that goodwill. The analyst says the company didn't do a very good melding the technology systems or the reservations process. Flight operations weren't smooth either. Last July, for example, fewer than 65 percent of the airline's flights were on time.

HARTEVELDT: It is very, very interesting to see what happens when you act with arrogance, when you don't pay attention to the details, when you take your business for granted. And, unfortunately, that is what happened with United.

KAUFMAN: Still, experts believe that merger will ultimately be successful in financial terms. As for the marriage of American and U.S. Airways, Standard & Poor's analyst Philip Baggaley says, over the long run, it too will likely pencil out financially. But he says...

PHILIP BAGGALEY: We don't see quite as much potential as we did with Delta-Northwest or United-Continental. Baggaley suggests the route networks of the two airlines don't complement each other as well. And while the merged carrier would have more flights to Europe, there would still be missing pieces.

Neither of them is strong in the Pacific. They don't have many of their own routes there.

KAUFMAN: And as Baggaley points out, it's international flights with full fare paying business travelers that are the most lucrative. The analyst cites another potential problem, too.

BAGGALEY: We think that a merger would raise labor costs possibly by a fair amount.

KAUFMAN: The pilots of both American and U.S. Airways are slated to get a pay raise as part this deal. It was one of the carrots that U.S. Airways offered to American's pilots to get their support for the merger. Labor costs are, of course, a huge factor in the airline industry, and they can make the difference between a carrier making money and not. Wendy Kaufman, NPR News.

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