American - US Airways Merger Might Reshape the Airline Industry

Last week AMR, American Airlines parent company, and US Airways Group announced that they intend to merge in what is essentially the last consolidation deal in the US airline industry.  The merger would create the largest airline in the world and reduce the number of major carriers in the US to four, namely American, Delta, United, and Southwest.  These four companies would control nearly 83% of all domestic seats.  However, most travelers are probably not that interested in the technical aspects of the deal, but rather on what changes would this deal bring to their flying experience.  It is relatively early to be certain of what is in store.  Nevertheless, lets try to make some educated guesses and put forth some suggestions. 

Assuming that the merger won regulatory approval and that the integration was relatively smooth, which is not by any means a given, American might finally be able to turn the corner in terms of profitability.  The industry as a whole, as well as consumers are likely to benefit too.  Prices would stay stable, as the remaining national airlines would be kept in check on the upside by low cost carriers like Southwest Airlines, JetBlue Airways and others.  The relatively small number of carriers and their large network of routes would encourage stability on the downside as well, making price wars unlikely.  This environment would allow executives to focus on improving operations and building better run airlines, which could finally be profitable.

Profitability would lead them to explore how to outperform their industry rivals based on these points:
  • The current flying experience in the US is generally poor, especially when compared to what is offered by Asian and Middle Eastern carriers.
  • Elite frequent fliers account for 1% of total frequent flier memberships, but for 25% of revenues.
  • Elite frequent fliers are mostly business travelers that mostly value perks, reliability and punctuality.
Therefore, all airlines would aggressively pursue frequent business travelers, improving their operations (reducing cancellations and delays) and offering a better customer experience before, during, and after the flight. 

Delta, which was the first of the above-mentioned airlines to go through bankruptcy, restructuring and a merger, has a leg up.  It has already updated its fleet and made some service improvements, placing iPads free of charge at gates and offering Porsche shuttle service for premium passengers in Atlanta.  United has finally resolved the disruptions that plagued the company as it struggled to integrate its computer systems with Continental's after their merger.  It is now moving forward looking to invest in new planes and facilities.  American would need to finalize the merger as fast as possible and hit the ground running.

Ultimately, all three major airlines would need to focus on the customer experience.  Most of the improvements would target the aforementioned elite frequent fliers.  However, most other travelers are likely to be positively affected too.  Airlines might consider some of these ideas:
  • Premium economy between business and coach classes with extra legroom seats (already offered at Delta and United)
  • Advanced entertainment systems, like the ones that Cathay Pacific and Singapore Airlines feature on most of their planes.
  • Complimentary access to lounges for elite frequent fliers even on national flights.
  • Remodeled lounges featuring a number of complimentary food items.
  • Remodeled gates featuring bright colors, comfortable seating, and technology, including TV screens, charging stations, iPads, and vending machines offering items useful for travelers, like phone chargers, headsets, earplugs, and toothbrush sets.
  • Luggage pick-up service anytime the day of the flight in key metro areas for all frequent fliers.
  • City check-in at a central rail station or metro station connected to the airport, like in Hong Kong and a number of other Asian cities.  It would appeal especially to tourists that would be able to check in hours before the flight in the city center already dispatching their luggage.
There are certainly many additional improvements that could tip the scale to the side of one airline versus another one.  As long as executives seriously pursued excellence in customer service and experience, they would be successful. 

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