(MoneyWatch) -- American Airlines and US Airways have agreed to merge in an $11
billion deal that would create the world's biggest airline - the seventh
merger sine 2005 in an industry that faces rising gas prices and
The new airline will take the
American Airlines name, helping to buoy a company that has been in
bankruptcy for more than a year, struggling to compete in recent years
as its rivals have grown.
But US Airways CEO Doug Parker
will run it, with AMR CEO Tom Horton serving as chairman until its
first shareholder meeting, likely in mid-2014.
of both companies approved the deal Wednesday. The companies announced
it early Thursday and expect it to close in the third quarter of this
"The combined airline will have the scale, breadth and
capabilities to compete more effectively and profitably in the global
marketplace," Parker said in a statement. "Our combined network will
provide a significantly more attractive offering to customers, ensuring
that we are always able to take them where they want to go."
airlines - the new American, United, Delta and Southwest - would now
have control over 70 percent of the U.S. market and some analysts are
warning ticket prices could rise as a result.
though people say this particular merger of US Airways and American
Airlines isn't going to raise ticket prices, I don't believe that one
bit," said Rick Seaney, CEO of FareCompare L.P.
After Delta bought Northwest in 2008, the decreased competition sent
ticket prices soaring more than 20 percent between Minneapolis-St. Paul
and Atlanta. The United Airlines merger with Continental in 2010
resulted 30 percent price increases between Chicago and Houston, as well
as Newark and San Francisco.
But consultant Daryll
Jenkins says the battle between the new "big three" may actually lead to
a price war benefiting consumers.
"Consumers are gonna
have a lot of choice and you're gonna see fares being moderated because
of the amount of competition here," he said.
Appearing on "CBS This Morning" Thursday, Parker downplayed concerns
over rising fares, saying the two airlines were "highly complementary,
not much overlap at all. But we've combined to create an airline that
can compete against the other two airlines that happen to be larger than
us right now -- United and Delta -- to create an airline that can
compete strongly against us. So it's more competition, not less."
consolidation trend is largely blamed on the price of fuel. Oil now
costs so much more per barrel than it did 10 years ago that one analyst
says the margin of profit on many flights has shrunk to the value of a
single seat. That means an airline can lose money if it flies with one
single empty middle seat. The days of elbow room are over.
creditors will own 72 percent of the new company, with the remaining 28
percent will going to US Airways shareholders. The creditors' portion
includes a 23.6 percent share for American employees and unions, plus a
small stake for existing shareholders of American's parent AMR Corp.
airlines said they expect $1 billion in combined benefits from the
merger. They expect the bigger airline to lure corporate travelers away
from competitors, contributing to $900 million in additional revenue.
They also anticipate cost savings of roughly $150 million.
They also said they expect to spend $1.2 billion on transition costs over the next three years.
on American and US Airways won't notice immediate changes. It likely
will be months before the frequent-flier programs are combined and years
before the two airlines are fully integrated.
companies had negotiated since August, when creditors pushed AMR to
conduct merger talks so they could decide which earned them a better
return: a merger or an independent American.
would need approval by AMR's bankruptcy judge and antitrust regulators,
who have permitted three other big airline mergers to go ahead since
The rapid consolidation has allowed the surviving
airlines to offer bigger route networks that appeal to high-paying
business travelers. And it has allowed them to limit the supply of
seats, which helps prop up fares and airline profits.
new American would have more than 900 planes, 3,200 daily flights and
about 95,000 employees, not counting regional affiliates. It will be
slightly bigger than United Airlines by passenger traffic, not counting
regional affiliate airlines.
The new airline will keep all of American's and US Airways' hubs.
companies said the new board of directors will have 12 members: Three
from American, including Horton; four from US Airways, including Parker;
and five appointed by American's creditors.
shareholders are poised to get a 3.5 percent stake in the new airline,
the companies said. That's unusual because equity holders typically get
wiped out in a Chapter 11 proceeding.
The companies said
it's too soon to know where the new airline's operations center,
reservations, flight training, maintenance and crew bases will be.
Shares of US Airways rose 17 cents, or 1.2 percent, to $14.66 in premarket trading.