American Airlines' bankruptcy: Seeking the best partner for AA | The Economist
American Airlines' bankruptcy
Seeking the best partner for AA
Jan 15th 2012, 18:56 by N.B. | WASHINGTON, D.C.
BOTH Delta Air Lines and US Airways have expressed interest in possibly acquiring the bankrupt American Airlines, according to multiple reports this week. Hunter Keay, an analyst with Wolfe Trahan & Co, told Bloomberg he expects the odds of American being an independent company post-bankruptcy are "20 percent, at most." So if a merger looks inevitable, which suitor would best for business travellers?
First, a few things to keep in mind. As my colleague noted in November, American has some debt problems—before it entered Chapter 11 in November, it had $30 billion worth of obligations against around $4 billion in cash. And the airline industry isn't exactly a great business. Note one of my favourite statistics ever, via Slate business correspondent Matt Yglesias: "Cumulative earnings across the history of American passenger aviation are negative $33 billion." That doesn't mean that individual airlines haven't made money, or that the industry couldn't be profitable in the future—indeed, the progress of industry consolidation and deregulation offers some hopeful signs for both travellers and the industry itself. But it's hard to know which way that's going.
Mr Yglesias argues for a "patriotic merger" between American and US Airways in order to give America three very large global airlines (Delta, United and the new US Air/American entity), with one big airline in each of the three major airline alliances. (Mr Yglesias wants the merged airline to join the American-led oneworld alliance, which sounds like a good idea but is far from a forgone conclusion. An American-less oneworld would be under enormous pressure from Star Alliance and SkyTeam, and could conceivably lose more members or fold altogether—something that should probably be avoided.)
Since I'm generally bullish on the airline alliances (and competition between them), I'd tend to think the US Airways/oneworld route would be better for competition, and thus better for travellers. But the real question is what American government regulators and anti-trust authorities think about the whole idea. A Delta-American merger would produce a company that would control a huge chunk of domestic market—29.6%, double the share of its next biggest competitor, Southwest Airlines.
Another issue is whether Delta's supposed interest in acquiring American is serious or simply an effort to cause problems for US Airways and oneworld. It's hard to imagine that Delta's executives aren't aware of the regulatory problems a merger with American might face. Whatever happens, this struggle will be interesting to watch.
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