Wednesday, November 13, 2013

Update on AA and US Airways merger: a curse for consumers?

This is a follow up on my previous post

AA and US Airways merger: a curse for consumers?

With the clearance of merger after reaching an antitrust settlement the merger is worth $17 billion! [article here]

To space out concerns over consumer protection, the airlines have agreed to give up space at few major airports to low-cost airlines such as Southwest, JetBlue etc. This will effectively reduce their combined  capacity. The settlement affects about a little over 100 flights out of more than 6500 flights which is just a small fraction of their business. 

AA and US Airways merger: a curse for consumers?

What makes the settlement interesting from a supply chain and revenue management are these questions.

  1. With more capacity and opportunities for low-cost carriers such as Southwest, the hope is to maintain competition among airlines which is to protect consumers, however the challenges are:
    • Keeping the prices low in remaining sectors which do not see increase in capacity for low cost carriers.
    • Are the low-cost airlines prepare to milk this new space? Does this mean a consolidation of low-cost airlines to compete with the big fish, i.e., 'AA and US'? In case of such a consolidation consumers will suffer the most...
  2. With the antitrust settlement reached, the consumers are now in open and can only wait and hope for the prices to remain low. On the bright side we have AMR filed for bankruptcy that can recover, US Airways that can benefit from synergies of the merger. The challenge here is however for current consumers:
    • AA is part of OneWorld Alliance and US Airways is part of the Star Alliance currently. For customers who are loyal to a particular alliance and have accumulated huge points on either of these network of alliances may face the brunt. As they have to switch to either of these alliances in future. For some customers it will be a Christmas present and for some a Halloween trick! It will be interesting how will the merger accommodate both these customers, keeping everyone happy is difficult anyways !
  3. Will other airlines follow suit? Will we see further government intervention or laws passed by congress to restrict other airlines from merging?
I feel there is a lot of uncertainty because of this merger, and we all have to hold on to our seat-belts and see where and when the flight takes off... 

What will be the future? and more importantly what should be the future of airline industry?

No comments:

Post a Comment