Tuesday, 3 September 2013

Arrival of the New-American

In January 2012, US Airways Group expressed their interest in merger with AMR Corporation. American airlines were looking for a merger with an Airline Company under the Bankruptcy Protection. It was said that US Airways being one of the Creditors of American Airlines was expected to be a prospective candidate for the merger.

In February 2013, American Airlines and US Airways declared their plans to merge. In this deal the stakeholders of AMR will own 72% and US Airways shareholders will own the remaining 28% stakes of the company. The New Airlines was to be branded under the name of American Airlines. The US Airways management team, including CEO Doug Parker, would be retaining the operational management positions.

The merged airlines are supposed to become the largest airline in the world, with almost 6,700 daily flights to 336 locations in 56 countries worldwide. Currently American Airlines has more than 3,500 daily flights to 273 locations in 51 countries, while US Airlines has more than 3,000 daily flights to 206 locations in 32 countries.
The merged airline is expected to have about $40 billion in Operating Revenue. This airline is planning to take delivery of 607 new aircraft, of which 517 narrowbody aircraft and 90 widebody international aircraft.

The merger would also rope in some better job opportunities. The merger is the only solution that serves the interests of all three: employees, shareholders and passengers. Together, both companies currently employ over 100,000 people around the world. Currently, American  Airlines  has approximately 81,000 employees, while US has approximately 38,000 employees. The figures are expected to rise after the merger. The Merger of the two giants is supposed to give the Best Class Service and above all it would add more destinations to their list.

Inspite of all these fascinating facts, why has the Department of Justice filed the lawsuit to block the deal that would create the world's largest airline?  The government is arguing that the merger would lead to higher fares and fees for the travellers. Competition would be lost at more than 1,000 cities where the airlines compete with connecting flights.

The two giants are supposed to have a strong presence at Ronald Reagan Washington National Airport. The merged airline is expected to control 69% of the slots at the National Airport, which would be six times more than the closest competitor (Virgin America, JetBlue, Spirit and Allegiant). The airlines has argued with the lawsuit that their union would actually make the market more competitive rather dull.

So should the Department of Justice allow the two airlines to merge and allow them to become the World’s Largest Airline or are they justified in thinking about the Domestic Competitors??

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