S Airways has won the support of unions at the bankrupt American Airlines for a proposal to fold the two companies into one giant carrier, US Airways CEO Doug Parker said Friday. American's parent company, AMR Corp, is hoping to emerge from bankruptcy court on its own, but the unions representing American's pilots, flight attendants, mechanics, and other workers are among the airline's biggest creditors, so they can help persuade the court to open the door to a merger. What would that mean for the airlines, their passengers, and the industry? Here, four possible ramifications:
1. Some of American's employees will avoid lay-offs
The unions, which represent 55,000 pilots, flight attendants, and ground workers, are "angry that American is trying to cut jobs and labor costs while under bankruptcy protection," say David Koenig and Joshua Freed of The Associated Press. AMR CEO Thomas Horton plans to cut 13,000 union jobs and throw out union contracts on pay and benefits to restore the airline's profits. US Airways CEO Doug Parker says his merger plan would save roughly 6,200 jobs at American, cutting the losses nearly in half.
2. It would create a healthy giant from two struggling carriers
"American and US Airways need each other," says Scott McCartney at The Wall Street Journal. Separately, neither can compete for business travelers or vacationers with the much larger rivals, Delta and United. But fold together the third (American) and fifth (US Airways) biggest U.S. carriers, and, presto, you have the biggest airline in the world. Together, US Airways and American will have the scale and efficiency they need "to stay profitable even during periods of high oil prices."
3. Parker can keep his promises or make a profit — not both
American's workers are "livid," says Justin Bachman at Bloomberg Businessweek, so winning their support was the easy part. But it's hard to say yet whether US Airways' Parker made American's unions "a realistic offer or one shaped to win over a key ally in American's bankruptcy." After all, United and Delta are doing well now because they made deep cuts to emerge from bankruptcy. Parker might find he can't keep his promises to the unions "while running a profitable airline."
4. This could mean big changes — and higher prices — for passengers
"Anytime you shrink capacity and jettison certain routes, airfares have nowhere to go but up," says Peter Greenberg at CBS News. So brace yourself for higher ticket prices. And use up your frequent-flier miles now, as reward seats would likely become scarce post-merger. The programs make money, so they won't disappear. But in a consolidated industry with just three big carriers they'll have less incentive to give away seats. So "instead of getting a free ticket, you'll get a toaster."
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