The Trend of Airline Merging

1) In April of 2001, American Airlines acquired Trans World Airlines, which operated its last flight on December 1, 2001. TWA was an airline that had been plagued by financial problems stemming from bad ownership since Howard Hughes became the majority stock holder in the 1930s. The nail in the coffin was the Carl Icahn era of ownership. Carl Icahn purchased the majority of stock in the airline in 1985. Icahn was a creditor of TWA, and was owed $190 million by the airline when they filed for bankruptcy in 1992. He made a deal before he left in 1993 that would get to him the money he was owed. He arranged a contract between Karabu Corp. (owned by Icahn) and TWA. Karabu would get a 45 percent discount on TWA ticket purchases, and was guaranteed a certain proportion of seats through 2003. Karabu then sold the tickets on LowestFare.com to consumers. The deal made millions for Icahn, but left TWA $540 million further in debt. Far in debt, TWA agreed to a merger with American Airlines, thinking it would be the best move to keep their employees working. More about this deal can be read at stlmag.com.

American Airlines promised to keep TWA's primary hub in St. Louis operating at its 2001 level. However, shortly after the acquisition, American began cutting back operations at St. Louis drastically and laid off half of the former TWA workers within two years, as a 2003 USA Today article states. Many TWA routes were cut. At the time of the publication of this article, all TWA flight attendants had lost their jobs, and 80% of the pilots had lost their jobs. American attributes the job cuts to the terrorist attacks of 2001, a SARS epidemic, St. Louis' close proximity to Chicago O'Hare airport, and a war. Laid off workers claimed that American made false promises to workers in order to get approval for the deal from Congress, and then quickly changed  face. The trouble with the merger is that all of TWA's employees went to the bottom of the seniority list, below all American employees, which made it easy to lay them off first.

2) United and Continental Airlines announced in May of 2010 that they would join together to form United Continental Holdings. The two had been in negotiation a merger two years earlier. Not liking United's financial outlook, Continental backed out of the deal. After the following two years had passed however, negotiations began again and a fast merger agreement came together. The merger created the largest airline in the world, surpassing Delta. Both airlines were struggling financially due to the recession, and merged with the expectation that creating one airline would save a large amount of money in operating costs. United and Continental were a good match because most of their routes domestically and internationally did not overlap, similar to Northwest and Delta's merger. United had large international operations to Asia, while Continental had large international operations to Latin America. On November 30, 2011, United Continental was granted FAA permission to operate under one operating certificate. Parties from the two airlines agreed to operate under the Continental certificate.

Last summer, United announced that 100 to 200 furloughed United pilots would be offered jobs at Continental Airlines, and would eventually fly for United again once the two airlines began operating on the same certificate- Dallas News. This had already given the merger a positive outcome. The first of the growing pains that the newly formed airline faced was how to form a new pilot seniority list. Unlike Northwest and Delta, United and Continental had not come to an agreement on this topic before the acquisition took place. All flight attendants are currently on a combined seniority list. There were other smaller, seemingly laughable issues, like whether or not to continue the broadcast of ATC communication on United's ATC channel for the passengers (they did), class configurations domestically and internationally (will be standardized this year), and whether or not to continue serving Continental's famous Angus cheeseburgers on flights. Also as part of the merger, the Department of Justice required United Continental to lease 18 slots at Newark airport to Southwest Airlines as part of an anti-trust agreement. The two companies also decided on equal branding and representation, keeping the United name but using the Continental globe. The Continental airlines CEO took control of the newly formed airline, and equal representation from each airline exists on the company's board.

3) As stated by the New York Times, American Airlines filed for chapter 11 bankruptcy in an effort to shed its debt burden and to cut labor costs. American Airlines was the last major airline to file for bankruptcy. The company has been having trouble competing with the growing low-cost airlines and has seen a large decrease in revenue, causing them to borrow money from creditors. AMR Corp. filed having $5 billion of cash. In the short term, American will continue to operate normally, and passengers are being told not to worry. American Airlines ordered 460 new 737s and A320s earlier this year in an effort to cut fuel costs and rejuvenate their fleet. According to Yahoo Finance, American plans on cutting 15% of their workforce, or about 13,000 jobs in an effort to further cut costs.

U.S. Airways and Delta are reportedly interested in acquiring American Airlines. A merger with U.S. Airways would strengthen American's weak domestic network. This would in turn increase traffic through American's hubs to transatlantic and Latin American destinations. Wary passengers are choosing not to travel with American which is creating a decrease in traffic through their hubs. A merger with U.S. Airways would strengthen consumer confidence and boost this traffic. In addition, the merger would allow the new airline to pay back creditors more easily than American could do alone (Bloomberg). Delta Air Lines is also reported to have interest in a merger with American, but will not confirm. The merger would once again create the world's largest airline for Delta. It would leave no corner of the globe uncovered by the mega-airline. I think that Delta's acquisition of American is far less likely than a U.S. Airways acquisition. There is far more fact-based value in a merger with U.S. Airways than with Delta, and the dust from Delta's merger with Northwest has just settled. I do believe that a merger with U.S. Airways is likely. Given the modern day trend with airline merging, I give American a 50/50 chance of making it out alone. I do believe that they will do everything they can to avoid a merger with another airline.

4) I foresee a decrease in job opportunities as a pilot resulting from these mergers. A merger happens because at least one airline is in a bad financial situation, which causes layoffs to pilots and route trimming. When one airline merges with another, usually at least some routes that overlap and flights will be cut. I would  forecast a lower amount of hiring with one larger airline as opposed to two or three smaller airlines. It would take fewer pilots to run the larger airline with fewer total flights than if the two were still independent. Another reason for less flights is decreased competition between airlines.