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No immediate impact for travelers from AA-US Airways merger

The widely anticipated merger between US Airways and American Airlines was finally made official after the boards of the two companies approved the deal, and although it will mean big changes for the airline industry over the long term, there will be no immediate impact on customers.

Some basic facts: The merger will result in a company worth $11 billion that retains the American Airlines identity and livery; it will be headquartered at Dallas/Ft. Worth; and its combined network will include 6,700 flights a day to 336 destinations in 56 countries. American’s chairman and CEO, Tom Horton,  will become chairman of the merged company, but only temporarily; US Airways chairman and CEO will be its chief executive officer and will become chairman after Horton leaves.

The merger is subject to approval of the federal bankruptcy court overseeing the reorganization of American’s parent, AMR; and also to the usual regulatory approvals. Analysts say that the Justice Department is unlikely to find any antitrust problems with the deal, since the two airlines’ networks overlap on only about a dozen routes; but the government might require some route divestiture at Washington National, since the combined airline would control a majority of the operations there. If all goes well, the deal is expected to close in the third quarter.

American and US Airways said in a statement that they expect to keep all their existing hubs, although others weren’t so sure. Fitch Ratings observed that the combined carrier would have hubs at DFW, Miami, Chicago O’Hare, Philadelphia, Charlotte and Phoenix, as well as a major presence at New York, Los Angeles and San Francisco. “While geographic location and separation helps support a rationale for hubs, it is still fair to ask whether maintaining as many as six hub airports at the same level of operations will be necessary to maintain an efficient single network,” Fitch said.

Bloomberg News asked six airline analysts about the impact of the merger on operations, and said they predicted that the combined carrier would trim about 3.9 percent of existing capacity once their route networks are optimized. Some observers raised the usual concerns about higher fares after a merger, although a recent study by PriceWaterhouseCoopers found that airline consolidation had relatively little impact on the cost of air travel — not as much as the addition of new and higher passenger fees in recent years.

In announcing the merger, AA and US Airways said the combined company would be the dominant airline in the East Coast and central U.S., and plans to “expand its presence and further strengthen the network in the western U.S.”  

The companies stressed that the “new American,” as they’re calling it, would remain a member of the global Oneworld alliance with British Airways, Japan Airlines, Qantas and others. That means US Airways at some point will leave the Star Alliance, although no timetable was given. The companies also said that the new American would still maintain its existing joint venture partnerships with BA/Iberia, Japan Airlines and Qantas.

It has long been reported that AMR wants to divest its regional subsidiary, American Eagle; but the companies said those plans are on hold now. “Before revisiting the topic of divesting Eagle, the combined company must develop a unified view of its regional strategy,” they said. “It is unlikely this will occur until after the transaction and integration process is complete.”

They noted that the three regional carriers they currently own — Eagle at AMR and Piedmont and PSA at US Airways — “are expected to continue operating separately” for now. But over the longer term, “we expect all regional carriers flying for the new American will eventually fly under the American eagle name and livery.”

The companies will also have to figure out how best to offer a uniform level of service across their operations. For instance, American recently added an extra-legroom seating product in economy class called Main Cabin Extra; US Airways has no comparable product. The companies said all previous aircraft orders remain in place, which should bring 517 new narrow-body planes and 90 new international wide-bodies into the fleet in the years ahead.

But for customers, the airlines stressed that it is business as usual for now. The two will continue to operate as separate entities for the immediate future; tickets are not interchangeable, everyone’s frequent flyer miles are safe and elite status is protected, flight schedules remain the same, and so on. “American and US Airways will remain separate companies and each company will maintain its current loyalty program” until further notice, they said. “Once the merger is complete, the new American will evaluate how best to structure its loyalty program.”

To learn more about what’s going on, go to www.aa.com/arriving.

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