The $11 billion merger agreement between American Airlines and US Airways is not expected to have a major impact at Logan International Airport in the near term, but with one fewer legacy carrier in the game, following three other mergers in the past five years, the industry would become even less competitive, driving down choices and potentially driving up prices.
The long-anticipated deal, announced by the companies Thursday, would create the world’s largest airline. The company will operate under the American Airlines name and will be based at American’s headquarters in Fort Worth with a major presence at the US Airways hub in Phoenix.
A straight-ahead combination of the airlines would make the new American Airlines the second largest carrier at Logan, serving slightly fewer passengers than JetBlue Airways, which accounted for a quarter of the airport’s traffic last year. Since US Airways and American don’t compete on any nonstop routes out of Logan, the merger is not expected to reduce flights for local travelers.
Both carriers fly from Boston to New York, but US Airways flies to LaGuardia Airport and American to John F. Kennedy International.
“The markets that they have will most likely stay,” said Edward Freni, director of aviation for the Massachusetts Port Authority, which runs Logan.
Frequent Logan passenger Evan Kirstel is not a fan of the service on American and US Airways, which he only flies “out of necessity,” and he only sees it getting worse with the merger.
“There will be fewer options and fewer competitors,” he said, “and that’s always bad for us travelers.”
Worldwide, American and US Airways share only 12 nonstop routes, out of a total of 900, and the combined carrier plans to maintain the airlines’ hubs and service levels, the companies said. But the merger will likely whittle the approximately 9,900 connecting routes that both airlines offer out of 100 smaller cities, said Rick Seaney of the travel deal site FareCompare.com.
“The smaller, medium-sized cities are going to take the brunt of these megamergers,” he said.
The decrease in competition means more pricing power for airlines, which may cause fares to go up, airline analysts say. When an airline initiates a price increase, often just one carrier refusing to match it can cause the original airline to call it off. Having one fewer airline out there to break ranks could mean more across-the-board fare and fee increases.
“With just three major carriers [American, United Airlines, and Delta Air Lines], it’s very unlikely anybody is going to be the renegade going forward,” said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group based in Pennsylvania.
But ticket prices haven’t spiked following recent mergers, according to PricewaterhouseCoopers. Airfare increased less than 2 percent a year between 2004 and 2011, according to a December report by the consulting firm, and that growth has not kept pace with increases in fuel prices and wages. When adjusted for inflation, airfare actually decreased by almost 1 percent a year.
US Airways and American are both located in Terminal B at Logan, but their operations are divided by a parking garage. Massport anticipates that the combined carrier will operate in a single location in Terminal B, which is currently under renovation. United, which has split operations between the A and C terminals since its 2010 merger with Continental Airlines, has also been slated to move to Terminal B.
“We have to play musical chairs here at the airport,” Freni said.
American Airlines’ parent company, AMR Corp., has been restructuring under bankruptcy protection, and if the merger with US Airways Group is approved by bankruptcy court and antitrust regulators, and shareholders, it is expected to be completed in the third quarter of this year.
Doug Parker, the US Airways chief executive, will run the combined company. American Airlines head Thomas Horton will serve as chairman through the first annual meeting of shareholders, at which time Parker will take over as chairman. The board will be made up of three representatives from American, four from US Airways, and five from American creditors.
Many of the airlines’ labor unions, including those representing the pilots of both carriers, support the merger.
Executives, however, face the challenge of integrating two very different operations and cultures, said William Swelbar, an aviation researcher at MIT. American is a global carrier with powerful international partnerships, he said, while US Airways is predominantly a domestic airline. As Swelbar put it in a blog entry about the two airlines: “One flies to China, the other to Chattanooga.”
The American-US Airways union is the fourth merger in five years, following the consolidation of Delta and Northwest Airlines, United and Continental, and Southwest Airlines and AirTran Airways. When the deal is approved, more than 85 percent of domestic capacity will be controlled by just four carriers, said Seth Kaplan, managing partner of the trade publication Airline Weekly: America, Delta, United, and Southwest. Ten years ago, the four biggest airlines accounted for less than 60 percent of domestic capacity.
Even with all the recent consolidation, the airline industry is still more competitive than most, Kaplan noted. In Boston, he said, “You probably have more airlines than cellphone providers.”