ANALYSIS: Thousands of decisions ahead for American-US Airways

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The incoming management team of American Airlines has “literally thousands” of decisions to make on the policies and practices at the carrier following its impending merger with US Airways, says soon-to-be president Scott Kirby.

These include everything from checked bag fees to the airlines’ in-flight amenities, all of which must be addressed and harmonised at some point during the integration, which is expected to be take about two years from close on 9 December.

“A whole series of decision making meetings around things that are different between the two airlines,” Kirby says on his packed schedule at the Fort Worth, Texas headquarters of the combined carrier after the deal closes. “All kinds of differences, there are literally thousands.”

In addition to decisions on the differences between the airlines, he will be learning about aspects of American’s operations that do not exist at US Airways, for example service to China, he says.

Kirby, who is currently president of US Airways, will relocate to Fort Worth along with many of his colleagues as the new American’s management team take up residence in the suburban corporate campus it occupies just south of the Dallas-Fort Worth International airport. Doug Parker, chairman and chief executive of US Airways, will lead the airline as chief executive.

Some initial decisions have already been made.

American and US Airways frequent fliers will receive reciprocal accrual, redemption and status recognition benefits from 7 January 2014, a codeshare will be rolled out in February with the latter’s code disappearing by the end of that month, and US Airways hopes to join the Oneworld alliance the day after it exits the Star Alliance near the end of the first quarter.

Kirby says that the carriers are on track to move to a single reservation system and a single operating certificate by the end of 2015.

OPTIMISTIC THROUGHOUT

Like other executives at US Airways, Kirby first heard about the US Department of Justice’s (DOJ) challenge to the merger via email.

“I was on my way to pick up my kids to take them to school and I got an e-mail,” he says of the morning of 13 August. “I had, by the way, with me in my car an offer I was sending in that morning on a house.”

That offer was quickly forgotten.

An intense three months of both preparations for trial and, eventually, negotiations of a settlement with the Justice department followed, with the settlement announced on 12 November – 13 days before a trial was scheduled to begin in Washington DC.

“I’ll acknowledge that I’m an optimist by nature and I was the most optimistic about this throughout,” says Kirby. “I, from the moment I heard about [the DOJ’s challenge], felt confident that we’d either – originally I didn’t think we’d get a settlement – that we would ultimately wind up getting the deal done by winning.”

The Justice department came out guns blazing in opposition to the merger.

“We think the right solution here is a full-stop injunction,” Bill Baer, assistant attorney general in charge of the DOJ's antitrust division, said unequivocally on the agency’s position at the time.

Kirby worked closely with both of the airlines’ legal teams, as well as travelled repeatedly to Washington DC to meet with both lawyers and the Justice department during the three months, he says, but adding that he never lost his optimism that the deal would get done.

“If you got slowed down or depressed about anything, all you had to do was go out and talk to employees, to tell you how much it meant to them and thank you for all your doing,” he says. “It was [both] energising and motivating.”

TACTICAL SETTLEMENT

The settlement that American and US Airways reached with the DOJ requires them to divest 52 slot pairs at Ronald Reagan Washington National airport and 17 pairs at New York LaGuardia, as well as two gates and associated facilities at Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International airports.

All are moves that Kirby calls just tactical.

“In the grand scheme these are all small tactical points [that] doesn’t really change anything significant about the merger,” he says.

American still aims to be the largest airline in the world and achieve at least $1 billion in revenue synergies by the end of 2015, even without the slots and gates.

Some changes will occur. Some regional service currently flown by US Airways from National will be cut, says Kirby. Profitability will be the main metric they look at when they decide what routes will go, he adds.

Growth that has been planned at Chicago O’Hare, Dallas Love Field and Los Angeles airports will be scaled back as well, he says.

“We’re going to have to figure out ways to either do more with the gates we have or find ways to grow our facility footprint there,” says Kirby on Chicago and Los Angeles specifically.

He declines to comment on reports that an agreement has been reached with Southwest Airlines and Virgin America for the slot pairs at LaGuardia.

With four days to go before the merger closes, Kirby says the atmosphere at US Airways headquarters in Tempe, Arizona, is excited but intense. This is not surprising considering the amount of change everyone is about to go through.

As for that house in Dallas, Kirby has set aside time from the thousands of decisions he and the team have to make to look for one with his family on the evening of 10 December.