American Airlines – US Airways Merger
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Case Code: BSTR493 Case Length: 16 Pages Period: 1929-2016 Pub Date: 2016 Teaching Note: Available |
Price: Rs.500 Organization: American, US Airways Industry: Airline Countries: US Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
On the Road to a Mega Merger
Even as American continued to wallow in confusion in 2011, US Airways set its sights on merging with American. By 2012, AMR reported a net loss of US$ 238 million. During the same period, US Airways had a record net profit of US$245 million. Initially, Tom resisted the deal, preferring to emerge as a stand-alone carrier, but AMR’s unions and creditors supported the merger.
That was a vital turning point for US Airways. The three major unions of American forged contract agreements to force the company to enter into merger negotiations. American had to enter into a nondisclosure agreement with US Airways under which the companies agreed to exchange certain confidential information and to work in good faith to evaluate a potential combination. In a letter to his employees, Parker said, "It does not mean we are merging – it simply means we have agreed to work together to discuss and analyze a potential merger." But industry experts opined that merging their strengths was the only way by which both the companies could compete with larger rivals. Putting to rest all speculations in 2013, US Airways and AMR Corporation finally announced the merger of the two airlines in a US$ 11 billion deal....
Industry Response
The merger evoked mixed response from analysts. Analysts expected negative outcomes from the US Airways and American merger. Both the airlines had clearly stated that the motive behind combining was "to better match capacity to customer demand and to increase shareholders' value". Thus, there were speculations that for travelers it was an indication that the excess capacity would be reduced, bringing down flight frequency and routes. There were apprehensions that travelers would be forced to travel by planes at higher fares. Experts also opined that the merger would give fewer choices to passengers by cutting down on gates, hubs, ground facilities, etc., to reduce costs. Rick Seaney, Chief Executive of FareCompare.com, asserted, "Fliers will ultimately face higher airfares after the industry shrinks to just three major carriers."...
The Integration
Although the two carriers officially merged in December 2013, the integration of major elements like combining frequent-flier programs, obtaining a single operating certificate from the Federal Aviation Administration (FAA), and getting to a single computer reservation system were done only in 2015.
The investors were likely to benefit from the merger as larger market share and earnings were expected for the merged entity. As per analysts, the combined operations got the advantage of declining oil prices in late 2014....
Looking Ahead
The company paid about US$ 350 million in dividends between 2014 and 2015. It also repurchased nearly US$ 4.5 billion in stock. Profits rose by 89% for the first nine months of 2015 to US$ 4.3 billion. Though officially the merger was complete, there were certain issues left unaddressed. The operational differences between the two airlines (they varied in terms of on-time performance) were left to be addressed. Operational performance had been one of the most distinguishing factors in the US aviation market; one of American's top priorities for the future was to continue to improve its operational performance and to close the gaps.....
Exhibits
Exhibit I: Consolidated Financial Data of American (2008-2014)
Exhibit II: Consolidated Financial Data of US Airways (2008-2012)
Exhibit III: Timeline of Mergers in US Airline Industry
Exhibit IV: Change of American Airlines logo (Old to New)
Exhibit V: On-Time Arrival Performance (% of Total Delayed Minutes) US Airways Inc. (US) (2010- 2015)
Exhibit VI: On-Time Arrival Performance (% of Total Delayed Minutes)American Airlines Inc. (AA) (2010-2015)
Exhibit VII: US Airlines Annual Middle Seat Score Card (2015)
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