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Will The US-American Merger Make The Skies Less Friendly?
Originally published on Thu February 14, 2013 11:46 am
NEAL CONAN, HOST:
This is TALK OF THE NATION. I'm Neal Conan in Washington. You can soon add US Airways to a long list that includes TWA, Pan Am, Eastern, Western, Braniff and so many others. US Airways will merge with American. The new American Airlines will be the world's largest, and after decades of consolidation, one of just four major airlines in the U.S.
So who wins, and who loses? Today a look at what consolidation means for the industry, its employees and for us passengers. But we particularly want to hear from those of you who work in the business. Mechanics, pilots, flight attendants, reservations clerks, how does this change things? Our phone number is 800-989-8255. Email us, email@example.com. You can always join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.
Later in the program we wrap up our Oscar Docs with reviews from NPR arts critic Bob Mondello. But first, winners and losers in the airline merger, and Marilyn Geewax joins us here in Studio 3A. She's senior business editor for NPR News. Nice to have you back on the program, Marilyn.
MARILYN GEEWAX, BYLINE: Hi, Neal.
CONAN: And we have to begin by noting that, well, it's not a done deal, we have to get approval for this merger.
GEEWAX: Mergers are always complicated. You have to get the approval of the Justice Department to make sure there aren't antitrust violations. You also need FAA to look at some things and sign off on it. So you need regulatory approval. Congress always finds a way to stick its nose in one way or the other.
CONAN: And there's a bankruptcy judge for American too.
GEEWAX: And then you've got - and that's even in just a traditional merger. But when you're in bankruptcy, now you've got creditors, stockholders. I mean there are just all sorts of constituents, not the least of which are unions, customers, frequent flyers. There's just a whole lot of people that have to get cooked into this stew before you can serve it up.
So airline mergers tend to take a long time. They want this one to move along as quickly as they can. They're talking about closing the deal in September. It's very likely that the Justice Department will go along with it. It seems like the courts are onboard. The unions have already sort of worked out deals. So it's likely this will move as quickly as possible, but still these are complex deals and they take a long time.
CONAN: And as you look at winners and losers corporately, it looks as if though it's going to be American Airlines in name, it's going to be US Airways running it.
GEEWAX: Yeah. If you take a look at sort of the exterior, it will look like American Airlines. It will have their colors, their logo. It's the eagle with a red wing and a blue wing and all that. But inside, who's really running the place? Actually, the emerging leader is the CEO from US Airways. And Doug Parker will be the person who's going to actually take control of this merger flight, and he'll be trying to get it up off the ground.
CONAN: Nevertheless, headquarters will also be at American's old headquarters, that's in Dallas-Fort Worth, and not in Phoenix, where US Airways is based.
GEEWAX: Right, they are going to have the - as I say, the brand name American Airlines is really well-known globally. It's been around a long time. It sort of has a better brand than US Airways if you're trying to be very global.
CONAN: Neither of those brands is - at least, you know, red hot.
GEEWAX: But they have a lot of flights to Latin America. So the name American has a little bit more resonance in this hemisphere. So they're going to stick with that, and it's a bigger operation at the Fort Worth, Dallas area. So Phoenix is going to come out. If you're talking about winners and losers, the Tempe, Arizona, Phoenix area will probably see about - there's about 750 headquarters workers there.
Now, I don't know how many might still last in Arizona, but an awful lot of them will be going to Texas. And you'll also probably lose some flights there because American already has big hubs in Dallas and Los Angeles, and if you just sort of look at a map of the United States, Phoenix looks a little redundant, stuck in the middle between two big hubs.
So you would have to think that, although they won't say this up front, over time the Arizona operation will probably be downgraded a bit.
CONAN: And you say the unions are onboard. Nevertheless, any byproduct of any merger has always been, well, there's going to be fewer people working in this new company.
GEEWAX: This is going to be a huge company. Now keep in mind, this will be the biggest of the big. There are going to be about 100,000 employees. But one of the things that they have to do to make this deal work is to cut costs by - they want some kind of savings on the order of about a billion dollars a year to trim their costs and try to get a little bit more profitable.
Now, why would workers go along with that? Well, because it's better to work for a stronger merged carrier than no carrier at all, which is a possibility. I mean American is in bankruptcy. US Airways has done two round-trips to bankruptcy court in recent years. It's not great being bankrupt, especially if you are heavily dependent on pensions and you want to make sure that you're working for a company that will exist well into the future.
This is a better of the two options. Merge or die was really what so many analysts had said. So this, one hopes, will result in a carrier that is stronger, has a more robust route structure. It stretches from coast to coast. You can fly from Maine to Los Angeles down to Latin America, over to Europe. This is a big, big company, and it should be more pleasing to frequent flyers and especially to business travelers, who will have more options now.
CONAN: Yet more options but fewer airlines. We're now down to just four real big ones.
GEEWAX: You know, one thing, if you look at where they fly, they don't overlap like all that much. I mean, of course they do in some markets, but for the most part US Airways is very strong on the East Coast, and it contains within it the old America West, so it's also strong on the West Coast.
But American Airlines is kind of right up the middle. I mean, you're talking Dallas and Chicago. So if you put it all together, now you've got a lot of presence on both coasts, and you've got a big strong center. So that's pretty good. That's a nice fit that shouldn't take all that much competition out of the air.
CONAN: We're talking with NPR's Marilyn Geewax, and we want to hear from those of you who work in the airline business about what all this consolidation means for you, 800-989-8255. Email us, firstname.lastname@example.org. We'll start with Tim, and Tim's on the line with us from Cedar Rapids.
TIM: Yes, I'm an airport director here in Cedar Rapids, and we see this as a positive for our market here because typically US Air was not a Midwest carrier. We have American existing now, but this could open up opportunities for connections to Philadelphia, Charlotte and possibly the nation's capital.
CONAN: So you think you're going to get more business?
CONAN: And when you say that American operates there, is it American or one of its subcarriers, the regional carriers?
TIM: We have Eagle flying to Chicago and Dallas.
CONAN: So - and they then connect, but they fly an American livery.
CONAN: All right. And how much difference do you think it's going to make?
TIM: Well, again, we've been petitioning US Air for years to try to get flights to the East Coast from this market, and I believe this will open up that opportunity for us into those hubs in the East.
GEEWAX: You know, this is a good example of the winners and losers here. This is a good story for many cities. On the other hand, it's fair to point out that for some people it will be a losing proposition. As I say, Phoenix may see some cutbacks in service. Maybe the hub in Philadelphia will see some reductions in service. And there are places like, say, for example, in Raleigh, North Carolina, there's a direct flight to London.
Well, you know, American - there are other - or rather American goes from North Carolina to London, but you also have flights from Charlotte to London. Well, do you really need that many flights to London out of North Carolina? So probably one or the other of those will get trimmed back.
So you're going to see some cutbacks where there's overlapping or so close to each other that really you can drive to one airport or another, and in those cities they're not going to like that. You don't want to lose flights. But overall for most people this will be an advantage.
CONAN: Tim, thanks very much for the call, good luck.
TIM: Thank you.
CONAN: And he mentioned the American Eagle, these regional carriers that feed into the airlines. Is this going to be a boon, or is this going to be bad news for them?
GEEWAX: Regional carriers are having a tough time in general. Gosh, I think that overall it's going to strengthen the system in general, it'll be a more robust carrier. So when you have an airline industry that is more financially stable, with a broader reach, that's probably good. But you know, for flights that are less than 500 miles, people are sort of fed up with the whole TSA thing, take your shoes off and take your belt and put your cell phone - oy, you know, you just want to get in the car and go.
I mean so for a lot of those shorter-haul trips, there are an awful lot of Americans who say, you know what, honey, let's just pack the trunk, we're good.
CONAN: Let's get Ed on the line, Ed's with us from Columbia in Tennessee.
ED: Good afternoon. I just wanted to call and say that I'm a charter pilot, and it ties right in with those shorter flights, especially, that we see this as an absolute boon. Ticket prices are absolutely expected to increase, and as they do, the charter option looks more and more attractive.
CONAN: So you think as we're going to be asked to pay more for commercial flights we'll see, well, maybe we can just charter a plane and do it ourselves?
ED: Absolutely, especially if you're talking about a group and on short notice. When you're paying full fare for an airline ticket, the charter option is - there's no TSA to deal with, at least not in the concept of going through a terminal building, and you've got the flexibility of smaller airports. So we're - we see this as a good thing.
CONAN: Ed, thanks very much, I hadn't thought of that, appreciate the phone call.
ED: Good day.
CONAN: And he raises a point. Whether it's good or not for charter flights, Marilyn, prices going to go up?
GEEWAX: There already is a lot of upward pressure on airfares. That's because oil prices are pretty high, and you know, it's - we're sort of out of this recession, the slow recovery thing. As travel picks up, you would think that we're going to see higher prices. Now, whether or not this specific merger - remember, I said it's complicated and it'll take a while to fully phase in, but once it is in place, yes, I think you could say generally speaking it will increase upward pressure on fares.
But keep in mind there are a lot of different factors when it comes to fares. During the worst of the recession, in 2008 and '09, prices actually ticked down because travel fell off. There was a lot of consolidation in the in the industry; yes, there were fewer carriers, but at the same time oil prices fell, travel declined, so prices went down.
And actually, you look at the government CPI, from 2001 through this year...
CONAN: That's the consumer price index, but go ahead.
GEEWAX: Yes, I'm sorry, yes, consumer price index, the government tracks inflation. And what it finds is that over that period of time, since the terrorist attacks in 2001 that shook up the industry so much, prices are really less than the overall rate of inflation. It's about 28 percent up. Inflation in general is up about 32 percent in that period of time. So it's a little bit less than inflation.
When you think about how tough it is to be in that business, what it costs to have to pay for oil, you know, for the jet fuel, it's amazing they've held prices down as much as they have.
CONAN: We're talking about the proposed merger between American Airlines and US Airways. If you work in the airline industry or on the tarmac, out onboard or in the terminal, tell us: How do mergers change things? 800-989-8255. Email us, email@example.com. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.
(SOUNDBITE OF MUSIC)
CONAN: This is TALK OF THE NATION from NPR News. I'm Neal Conan. If the announced merger between US Airways and American Airlines goes through, it will become the world's largest airline. The current title-holder is United, which merged with Continental in 2010. The two carriers have had a tough time integrating, there have been issues with reservations, with the websites, delays, stranded passengers. That's to be expected.
Major mergers often come with major headaches, at least over the short term. In the long term, they can be a boon to investors, employees and passengers. So if you work in the airline business, on planes, in planes, in airports, how does a merger change things? Our phone number, 800-989-8255. Email us, firstname.lastname@example.org. You can also join the conversation at our website, which has no problems whatsoever. That's at npr.org. Click on TALK OF THE NATION.
NPR senior business editor Marilyn Geewax is our guest, and joining us here in Studio 3A is Darryl Jenkins, chairman of the American Aviation Institute and longtime consultant to the airline industry. Good to have you on the program.
DARRYL JENKINS: It's nice to see you, young man.
CONAN: Thank you very much.
CONAN: Now American is, well, I guess still in bankruptcy, just beginning to emerge. This seems to be absolutely critical for them.
JENKINS: Well, this is a very big deal. We've had three major mergers before this, Delta, Northwest. Then we had United, Continental. Then we had Southwest, Air Tran. As networks get bigger, the ability for them to capture the business traveler, who sits at the front of the plane and pays the highest fares, becomes more and more important.
And these business travelers, you might have 10 percent of your travelers in an airline might account for as much as 40 percent of your total revenue. So to be able to compete in these large networks, you, too, have to be a large network. And it's even more than a large domestic network. We're talking about three or four large airlines now.
What we should be talking about is worldwide and move kind of away from the airline metric and go to the alliance metric. So worldwide, we have Sky, we have Oneworld, and we have Star, and it's the big alliances that are going to be the players in the future.
And as we go forward, what we're going to see is that more and more of these are getting antitrust immunity on certain routes, which gives them the ability for two airlines to get together and actually act like they were one company. It's a virtual merger. And so they can talk about and coordinate prices and schedules, which otherwise would be an antitrust problem. They get antitrust immunity to cooperate.
And on these routes on which they're cooperating, they're sharing revenue. So they're having a joint P&L. So we see these large virtual mergers taking place in the airline, and we need to start thinking way outside of the United States. And American, United and Delta, we need to start thinking of alliances and where we're going globally. Then you have...
CONAN: Let me just follow up on that.
JENKINS: Yeah, go ahead.
CONAN: Marilyn mentioned earlier that between them, American and US Air have pretty good routes to Latin America, to Europe, weak, though, in Asia. Is their alliance system going to solve that problem?
JENKINS: Well, see, that's the whole purpose of alliance. Nobody has enough planes and enough money to fly everywhere in the world, and you have so much government regulation and treaties on these that it's impossible. So the necessary element for being able to compete in a global economy are these large airline alliances.
CONAN: Marilyn, as you look at this worldwide situation, all of a sudden the necessity for creating these four bigger companies seems to make more sense, but this is something that's been going on for decades. We've seen - we had that list of just a few of the airlines that have vanished over the years, but there were dozens, it seems, just 20, 30 years ago.
GEEWAX: So many, and, you know, a lot of them started out - like Delta was a crop duster in, you know, the Mississippi Delta kind of thing. I mean, these companies started small because the world of aviation was small. People went on little kind of puddle-jumpers from here to there, but over time, we've become really a globalized market where this merger between Delta and Northwest has turned out to be pretty brilliant because that gave a lot of opportunities for Delta to expand into Asia because that's the old Northwest Orient, where they used to fly in Asia.
So they picked up a lot of ability to get into the world's fastest-growing market, and I think U.S. carriers, these days you just have to think on a larger scale. Those days of short hops from here to there just - it's just not where you can make any money. And in some ways that fits in with this larger vision for transportation, where the president keeps talking about high-speed rail to connect cities in ways that maybe are a little bit more efficient than actually going to an airport to fly.
And these city buses, you know, here in D.C., if I want to go to New York, I don't go to the airport, I go down to a bus, and for 30 bucks, you can get right into Manhattan...
CONAN: And you don't go to the bus terminal, you go to a parking lot somewhere.
GEEWAX: Right, you just stand out on the street, a bus picks you up, and the next thing you know, you know, you've got wireless, and you can sit there with your computer and do some work, and a couple hours later you're in Manhattan.
CONAN: I've taken those buses. Next thing you know, you've got a headache. But anyway, let's see if we can get another caller in on the conversation. Let's go to Chet(ph), Chet's on the line with us from Jacksonville.
CHET: Hi, the mergers are actually pretty good from the standpoint - I'm a pilot with United. The airlines are now, as the call, as they use the phrase too big to fail. A lot of pilots have jumped from airline to airline as their old airlines have basically gone bankrupt. But the pilots are still trying to recover from basically losing half of their pay and all of their pensions during the bankruptcy years.
And these mergers take away the possibility of a strike because during the Clinton years, American, although it was smaller, American pilots tried to strike, but Clinton basically said you cannot because we cannot lose the service that you offer.
CONAN: So this new situation, you feel like at least all of these companies are now going to survive and maybe even thrive?
CHET: I think they'll survive, but for pilots trying to get back what they've lost in a bankruptcy, the possibility of a strike, which is still part of the negotiating process, that's gone. They don't have that anymore because airlines cannot stop for any length of time to achieve, you know, what they're going to try and achieve.
CONAN: Well, let me ask you, Darryl Jenkins, is he right? Are the - is the days when the pilots were lords of the sky gone forever?
JENKINS: I don't think so. We recently had a kind of an historic event. First of all, what he was saying was true, and I was listening very carefully to that. Pilots took an enormous hit during all of this, both in pay and especially United retirement. And a lot of these guys who are out there flying are my age, which means they're older than Methuselah, and they want to quit working and retire and enjoy life, which they thought they were going to have. So there's no doubt that the pilots took an enormous hit through all of this.
What we saw through all of this, though, was a historic event, which I never thought would happen, and it happened at Delta Airlines. And this is why I consider to be the best-managed airline out there. For the first time in the history of the deregulated industry, we saw an airline come to an agreement with its pilots before the previous contract was over.
And it was a very generous pilot in terms of pay and benefits to the pilots, and at the same time you gave up a great deal of productivity to the company, where both sides got what they wanted. Now this was kind of interesting for a couple things. One, in the Delta merger, you had two of the brightest people in the world on opposite sides, you had Lee Moak, who was head of the union, and you had Richard Anderson.
And Richard Anderson's genius was listening to Lee Moak, and it was basically get the pilots onboard, and let them work out their problems first, and that way when we go into the merger, some of your biggest problems are behind you. And basically they had probably one of the - they had, let me tell you, any merger has problems, and any merger has headaches, and Delta-Northwest had their own integration problems, thousands of which customers never saw and a dozen or so which they did see.
So I'm a little bit optimistic that if we have union leaders that are as bright as Lee Moak and CEOs who are bright as Lee - or Richard Anderson that we can see a new model. So we have a very generous contract out there for the pilots who are flying at Delta now, and how they did that really should be the model for everybody else, how we run this industry.
CONAN: Marilyn mentioned some of the glitches in other mergers. We saw some glitches for sure in the United-Continental merger. They're still going on. There have been days when the whole computer system shut down.
GEEWAX: Several times last year. There were problems as they tried to put their computer systems together, where you had thousands and thousands of people stranded at airports, just absolutely shut down because the computers didn't get together. So that's why I say, you know, like...
CONAN: And there will be people, including me, who will complain they never did get my frequent flyer miles right.
GEEWAX: Exactly. You know, it's a tough experience flying. You know, you've got to go through the security thing, you have to get there early, everything seems expensive. You've got your $10 hamburger waiting with, you know, getting your $3 newspaper. It seems frustrating. You can't believe you're going through this. It's very off-putting, and a lot of people don't want to fly anymore because it's so tough.
But when you look at it from the airlines' point of view, they just don't make any money. They really suffer. It's tough to be an airline. And they've got these tough problems like merging online systems for reservations. They've got to figure out the internal workings of their computers so that everything gets together.
The equipment is very expensive, it's complicated, and your labor force needs to be super well-trained. I know when I get in a plane I want a pilot who knows what she or he is doing, and I would like them to be well paid and pretty happy and well rested.
Well, try and get that to all come together: the labor cost, the computer cost, the equipment cost. And dealing with airports is not particularly easy. They're often run by - cities' airport authorities can be tricky to work with. So it's just an awfully hard industry to pull it together.
CONAN: It sounds like you're describing that old Yogi Berra line: Nobody flies anymore; the planes are too crowded.
CONAN: Yeah. Let's see if we can get Carrie(ph) on the line. Carrie is with us from St. Augustine.
CARRIE: Hi. Hello. Yes. I was, you know, I was going to make a couple of points. Actually, I'm with - I was a flight attendant from - with USAir. I started with Piedmont Airlines. And when USAir bought Piedmont, they had also bought PSA, and we went through this training. Back then we had three days of training to sort of incorporate us into, you know, their airline and how our new airline was going to be, and I just think that was very helpful. And, you know, we acquired America West. USAir acquired America West about five years ago, and we're still not merged totally.
CARRIE: And, you know...
CARRIE: ...I think that management - I think old management was - were really big airline people and love the airlines, and that's why, you know, it was really good. And now the CEOs of these companies, now aren't necessarily airline people, and they're, you know, they just are number crunchers, and they may do a good job with that, but, you know, I feel like we're lacking in some of our customer service areas and, you know, things like that. Like we used to just be very good at it, so we, I don't feel, are as good as we used to be, you know? And, you know, I'm old-school.
CONAN: If there was...
CARRIE: I like good customer service, you know? And I - yeah. I don't know. I just - so I'm kind of anxious about this merger. It's going to be a very big airline, and it's, you know, it'll be interesting to see how it all, you know, comes out. But...
CONAN: And do you - are you afraid that being a very big airline, it's going to be very impersonal, not just to its customers, but to its employees like you?
CARRIE: Yes. Yeah. Yes, I do. I think, yeah, I think that that could definitely happen now.
CONAN: Well, thanks very much, Carrie. Good luck in the merger.
CARRIE: Yes. OK. A little bit. Yeah, thanks. Bye-bye.
CONAN: We're talking with NPR's Marilyn Geewax. She's our senior business editor. And Darryl Jenkins is with us, chairman of the American Aviation Institute. We're talking about the proposed merger between US Airways and American. The result would be, $11 billion combined, the largest airline in the world. You're listening to TALK OF THE NATION from NPR News.
And let's get Michael(ph) on the line, Michael with us from Maryville in Missouri.
MICHAEL: Yes. I do want to echo the young lady's remarks. Before having been through a merger myself, I'm a longtime retired TWA avionics engineer, and, of course, our concern is American Airlines bought TWA around 2000 or in that period of time. And those of us that were already retired became a bit of a legacy issue for American.
Our retirement fund had already been taken over by the PBGC, but the medical, travel benefits, quote, unquote "employee benefits" were retained by American. So we've recently, during all these talks, have had letters forthcoming saying, American Airlines is dedicated to maintaining your retirement benefits and medical benefits. However, we reserved the right to change them.
MICHAEL: So we're all sitting a little bit - well, I say all. I'm certainly sitting a little bit on the nervous side about that.
CONAN: And, Darryl Jenkins, just let me interrupt by saying there's nothing more pejorative word in the airline industry than legacy.
JENKINS: I certainly agree with that. Well, he brings up some very good issues, and a lot of us have been around this industry for a very long time, and we've seen these things happen. And when you have something like this, it does create uncertainty, especially for the legacy employees and especially for someone like a TWA. So I assume if I were in his shoes, I would probably be feeling the same way.
CONAN: Michael, when do you get your next letter?
MICHAEL: Well, I don't know. I'm wondering about that. I'm thinking I'll rush into the house and get on the computer. And let me hasten to say that American Airlines has been terrific to us, and while they're offering their caveat, they've been really, really good.
But to the young lady's point, if I might add, we purchased Ozark Air Lines back in the '80s, and that was a Missouri airline like TWA, only they operated out of St. Louis. And as an engineer, I took on a lot of the avionics equipment for the aircraft and stuff. And I have to tell you that the merger really never got down to the work-a-day Joe level. There was always a certain amount of attention, you know, in the framework. Well, we never did it that way before.
CONAN: I see. Yeah. All right. Well, Michael, good luck. Thanks very much for the call.
MICHAEL: You bet.
CONAN: And that raises another point, which is, Marilyn, the technology. Airlines, whether - they have to change rather rapidly, because otherwise you're going to be innovated out of business.
GEEWAX: You know, it's not just the plane itself, and that's a big deal. You have to update that technology so that you're more energy-efficient, less polluting, and the whole industry has to move towards more modern aircraft. But also on the inside, the passenger experience. People want Wi-Fi. They want to be able to book flights on their smartphones.
There's just a whole lot of technology that goes into travel these days, or people will choose other alternatives. As I say, they'll take those buses or the high-speed trains or whatever other options they can think of, unless airlines learn to compete in a technologically savvy way. And I want to make this one other quick point about technology, there's one other possibility for how to ruin an industry and that's Congress. Yes, I said Congress. They are in-charge of the FAA budget. The FAA needs to modernize the air traffic control system. There's this whole system called NextGen, next generation of air traffic control, that they are trying to roll out. That's a pretty tough thing to do when you're always facing government shutdown. You don't know what you're funding's going to be. So the FAA is trying to advance technologically, as well. A couple of years from now, we may be in a much better era where if we can get that all straightened out and that mergers go through and the industry sort of stabilizes and modernizes, or we could really blow this opportunity by failing to update the things that need to be updated.
CONAN: Marilyn Geewax, as always, thanks very much for your time.
GEEWAX: You're welcome.
CONAN: NPR's senior business editor, Darryl Jenkins, nice to see you again.
JENKINS: And you too.
CONAN: Darryl Jenkins, chairman of the American Aviation Institute. They were both kind enough to join us here in the studio 3A. When we come back, we'll put the cap on this year's series on the best feature documentaries. We've been speaking with all of the filmmakers over the past couple of weeks. NPR's arts critic, Bob Mondello, will join us with reviews of the five films nominated for the Oscar. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.