After a long courtship, US Airways and American Airlines announced Thursday they will merge to become the world's largest airline, melding two carriers with divergent strategies for how to approach the Los Angeles-area market.
The combined airline will take American name and continue to be based in Fort Worth, Texas. If regulators approve the deal, as expected, American will become the world's largest carrier by passenger traffic, surpassing United Airlines. The airline will have roughly 6,700 daily flights to 336 destinations.
The $11 billion merger is likely the last in series of recent airline tie-ups that have changed the scope of the nation's aviation industry during the past five years. When the merger is complete, three carriers with major international route networks - United, American and Delta Air Lines - will control slightly more than half the nation's market share. Southwest Airlines, which operates a mostly domestic schedule, will be the nation's fourth-biggest airline, carrying about 15 percent of customers.
Most Wall Street analysts favor the merger, believing the combined carrier can reduce costs, boost profits and better compete with United and Delta, both which have completed large-scale mergers recently. But the new management team, led by current US Airways chief executive Doug Parker, will need to develop a strategy to unite two airlines with different philosophies both nationally and in Southern California.
American, now the third-largest carrier, is a true international airline - it is especially dominant to South America and Europe - with robust operations in New York, Los Angeles, Miami, Dallas and Miami. US Airways, meanwhile, has considerably fewer international flights and is concentrated in Charlotte, N.C., Philadelphia and Phoenix. It is now the fifth-largest airline, behind Southwest.
Locally, American has concentrated its efforts at Los Angeles International Airport, where it is second in market share behind United, in part because it is a favored carrier among the entertainment and business communities. US Airways, meanwhile, has relatively flew flights at LAX but has a comparatively larger presence at outlying airports like Ontario, Burbank and Long Beach.
The strategy for the combined career won't become clear for some time, but Andrew Nocella, senior vice president of marketing and planning for Tempe, Ariz.-based US Airways, said in an interview Thursday that the entire Los Angeles basin will be important for the new airline. For now, the carriers only overlap on one route here - from LAX to Phoenix.
"This is a game changer for us, and I think for American," Nocella said. "I think it's going to make us better off in Los Angeles. We are going to be here to compete. This is the new American."
The old American announced, in late 2009 - two years before it filed for Chapter 11 bankruptcy protection - that it would focus on building up operations at its Los Angeles hub. In the spring of 2011, it began 10 new routes from LAX, including one to Shanghai. Before the merger, American officials had said the airline might continue to grow once the new Tom Bradley International Terminal opens in 2014, giving it access to more gates.
American's strategy at LAX has historically focused on attracting premium, high-fare passengers, especially on its flights to London, Shanghai, Tokyo and New York. The airline recently announced a plan to make significant upgrades to its first and business class cabins, including installing a bar on some of its Boeing 777 airplanes. And soon, it also will become the only carrier to offer a true first-class cabin on its flights to New York's John F. Kennedy Airport.
US Airways, meanwhile, has pursued a different strategy. While the largely no-frills airline has a full slate of European flights from its East Coast hubs, its West Coast flights are mostly within the United States. Among major carriers, it operates by far the fewest flights from LAX, with service only to Phoenix, Charlotte and Philadelphia.
But while American has largely focused its efforts on LAX, US Airways has made an effort to connect Ontario, Burbank and Long Beach with its Phoenix hub. The airline has five daily flights from Long Beach, five from Burbank and five from Ontario. Of those airports, American serves only Ontario, with four daily flights.
Nocella, the US Airways executive, said he expects the new airline will continue to serve all of the area's airports, though it is much too early to know for sure.
With US Airways executives now running the combined airline, it might make sense for the new American to pare down its Los Angeles flights while building them up at other airports in the region. But Brett Snyder, founder of the aviation website Crankyflier.com, said US Airways executives know the world's largest airline must have a strong presence at the nation's third-largest airport, where it will compete with United and Delta.
"The US Airways management team has always had a pretty clear strategy that, if you can't be No. 1 or have a serious presence, then why be there?" Snyder said. "If you go with the current US Airways strategy, they would just walk away from LAX except with flights to their hubs, because it's a bloodbath with all the airlines fighting. But now you're one of the big three. You need to be relevant."
Henry Harteveldt, an aviation industry analyst at Hudson Crossing in San Francisco, said he expects the combined airline will focus on both LAX and on outlying airports. Long Beach and Burbank, for example, could gain flights to Dallas Fort Worth airport - American's largest hub.
"The good thing is I don't think L.A. will be affected in any negative way," Harteveldt said. "If anything, it might make L.A. a more important market. What this means is that American Airlines as a single airline will have a lot more utility in the L.A. basin, including in Burbank and Ontario."
American and US Airways officials said Thursday they won't know their exact strategies for some time. But Derek DeCross, vice president of global sales for American, said the Los Angeles market will remain key for the new airline.
"It's something we are dedicated to," he said. "It's a huge base for our corporate customers. It's something we don't intend to give up."
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