Report: What’s next for American Airlines?
Guest Writers are not employed, compensated or governed by TD, opinions and statements are from the specific writer directly
Since American Airlines entered bankruptcy earlier this year it has been subject to various rumours over its future funding.
Last month the carrier’s owners AMR hinted at five potential merger partners in the form of US Airways, JetBlue, Alaska Air, Frontier Airlines and Virgin America as it moves through its bankruptcy, which it is expected to come out of in this year’s fourth quarter.
Industry issues of high fuel prices, economic downturn and tight budgets have seen the airline restructure and announce job losses, although the situation may not be as bad as it appears.
What many fail to remember is that several of the US’s carriers filed for the Chapter 11 bankruptcy after 9/11 to secure creditor protection, with United, Continental, US Airways and Delta all coming out successfully. American Airlines has still invested in its cabins in the past year and is prepared with new offering when it exits bankruptcy, although it is unclear if these are changes to routes, aircraft, cabins or services.
Reverting back to a proposed merger, British Airways’ parent IAG has shown an interest in American as its trans-atlantic business partner and fellow member of oneworld. According to reports, IAG’s chief executive Willie Walsh said it was open to a stake if “there’s a strong strategic argument for investment” although admitted it was unlikely. “But it would be a small investment and not of any major significant scale. We have not looked at doing it at this stage,” he added.
Walsh is said to have voiced strong support for a merger between American and US Airways, a tie-up that has been analysed in a new White Paper released by US-based Business Travel Coalition (BTC) and American Antitrust Institute (AII). As the fourth and fifth largest carriers in the US, the American/US merger would see 70% of the domestic US market controlled by four airlines.
In addition with low-cost carriers dwindling in the US, there are concerns over competition in the market broadly.
“The merger could therefore hasten a troubling metamorphosis of the domestic airline industry from one in which hub airports were designed to accommodate multiple, competing airlines to a few large, closed systems that are virtually impermeable to competition and create a hostile environment in which LCCs and regional airlines have difficult thriving and expanding,” the report reads.
While it raised the point that there have been six airline mergers in the US in the last seven years and American would benefit against the ‘behemoths’ of Delta and United Continental; it seems its concerns over competition and how it would change the industry for the future were too great. With minimal statistics available into the impact of previous mergers on competition and pricing, the BTC and AII called for a full investigation into the potential effect of the merger against nine policy recommendations.
So the future of American still remains unclear, but with the carrier due to exit Chapter 11 later this year the rumour mill will continue to come for a few months yet.
