This week, American Airlines said that it would formally begin reaching out to potential merger partners, reportedly including competitor U.S. Airways, which has been relentlessly pursuing a merger for months. The announcement from parent company AMR marks an about-face for CEO Tom Horton, who has long insisted that the company first emerge from bankruptcy proceedings, which it began in November, before considering a merger. However, Horton has been under pressure from AMR unions and creditors to team up with U.S. Airways, which would create the country's largest airline and a formidable competitor for United (which recently merged with Continental) and Delta (which combined with Northwest). Should AMR merge with U.S. Airways?
Yes. A merger is American's only option: "Virtually everyone in the industry believes that American, the third-largest airline in the country, and U.S. Airways, the fourth-largest, will eventually have to merge to stand a chance" against United and Delta, says Andrew Ross Sorkin at The New York Times. The airline industry has moved toward consolidation in recent years, in order to keep costs down and maximize profits, and American won't be able to withstand the trend for long. "The question is when, not if."
"American Airlines and U.S. Airways dance around a merger"
No. American could stand on its own: Investors scoff at the idea that American can remain independent, but in recent months the struggling company has shown "encouraging signs," says David Koenig at The Associated Press. American is posting "better revenue per mile flown by each seat than its rivals," meaning it's "able to raise fares while filling seats." The airline says it has boosted business in the "all-important corporate-travel" area, and its bankruptcy proceedings should help it reduce its labor costs, which are the highest in the industry. Put all that together, and it's possible that Horton can keep American from U.S. Airway's clutches.
"AMR CEO says it's time to weigh merger options"
And it would be bad for travelers: The most likely outcome of an American-U.S. Airways merger is higher fares for travelers, says ABC News Radio. The recent trend of combining independent airlines into behemoths has led to a spike in ticket costs and fees, since airlines have less competition than before, which gives them little incentive to offer cheaper prices. What the country needs is fewer airline mergers, not more.
"An American Airlines merger could mean higher fares for travelers"
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- Why is the West so afraid of Islam?
- How Ronald Reagan turned America into a nation of children
- Why Mitt Romney is perfectly poised for a comeback in 2016
- The Nazi smart bomb that inspired China's most dangerous weapon
- How to make classic pulled pork
- 8 secrets to steal from power networkers
- 8 things the world's most extraordinary survivors can teach you about resilience
- 10 things you need to know today: August 1, 2014
- Here's the schedule very successful people follow every day
- What would a U.S.-Russia war look like?
Subscribe to the Week