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April 17, 2024
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One of the reasons American Airlines is currently in Chapter 11 bankruptcy is arrogance.   American was “too proud” to declare Chapter 11 when the rest of the industry did after 9-11 and restructure, even though restructuring at that time to remain competitive would have likely resulted in their retaining an industry leadership position, rather than shrinking while others expended or consolidated.  But that arrogance is nothing new for American.  American’s culture has never been one to “play fair with partners” and we’ve watched former partnerships and joint ventures go down the tubes one after another because American always seemed to want an 80/20 rather than 50/50 deal when it worked with other airlines.

American does have a legacy of innovation, including the first computer reservation system, the first yield management systems, inventing super-saver fares, and the first frequent flyer program.  While these were now long ago, American has retained a culture of ill-placed managerial superiority while being in denial of reality, which finally came to a head with the resignation of Gerard Arpey rather than to take the company into Chapter 11 on a timely basis.  Perhaps not surprisingly, that arrogance remains even in bankruptcy, as American has submitted plans to the court to emerge as a stand alone carrier and then evaluate potential merger partners once it emerges.

The problem with that attitude is that the most logical merger is standing in front of them with a proposal that makes sense, will save jobs, and make the carrier successful again, but American’s management believes they can do better.  They certainly haven’t for shareholders, and appear to now be looking out for themselves rather than their stakeholders, employees, suppliers and DIP financiers.

US Airways has a proposal that appears to make sense, and would create a carrier with the critical mass to compete with Delta (after acquiring Northwest) and United (after acquiring Continental).   The networks of the two carriers are complimentary, with little overlap, and a conquest of US Airways for one world rather than Star would strengthen what is currently perceived as a weaker alliance.   American is currently losing key high yield business traffic to United and Delta, who offer stronger networks with greater geographic coverage. A merger with US Airways would fill those gaps, enabling American to better compete for the lifeblood of the industry, the business traveler.

American has indicated it would consider several potential merger partners apart from US Airways, listing several of the remaining independent carriers.  Alaska Airways has always preferred independence, and has a attractive west coast niche, but would not add enough volume to bring American to the critical mass of its two major competitors.  JetBlue is a low cost carriers with a different business model than American, as is Frontier, another potential partner.  Virgin America was also mentioned, but competes head to head with American on transcontinental routes with a premium service model, and regulatory approval would be unlikely.  The only real player in town  with a network that really fits well is US Airways.

Years ago, American left the northeast for Texas, and abandoned many of the local routes in the region in favor of long-haul services through its Dallas and Chicago hubs, and transcontinental and international services.  US Airways brings the smaller destinations in the northeast, and would effectively fill in the route network to be competitive with United and Delta.

A potential partner that makes good business sense is proposing marriage.  Just because American is the one being asked, rather than the one doing the asking, isn’t a good reason to reject a proposal that would be beneficial to all involved.  Perhaps it is time for American to be taken over by a management team that recognizes that American’s innovation has stalled, that its network isn’t large enough to compete for lucrative corporate contracts against United and Delta, and that the time for action is sooner rather than later.

Having identified its other potential merger partners, American now runs the risk that US Airways gets to them first, and down the road forces American’s hand by being the stronger carrier in terms of size.  It already appears to be financially and managerially.

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3 thoughts on “American Airlines’ Plans for Post-Bankruptcy Merger

  1. Frontier and Jet Blue? Their business model only makes sense as standalone and can never be an option…?

  2. Maybe the Jet Blue strategy is not that crazy. Look at the success that Qantas has with Jetstar. AA could do well to re-focus the main business (even if it does Merge with US Air) and look to develop the LCC model as a complementary strategy. Jetstar is making good money for QF and is growing.

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