How to Integrate an Airline: Addressing the Challenges Faced by American Airlines and US Airways

By Jonathan Spira on 14 February 2013
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AA CEO Tom Horton at DFW

AA CEO Tom Horton at DFW

When US Airways CEO Doug Parker and American Airlines CEO Tom Horton look back at the fruits of their labor in a year from now, they’ll both think that the yearlong courtship and somewhat acrimonious negotiations were the easy part.  All they have to do is ask Jeff Smisek, United Airlines’ CEO, who just last month on the airline’s earnings call called 2012 “the toughest year of our merger integration” and said, “We are absolutely not satisfied with the financial results we produced last year.”  United merged with Continental in 2010.

The two men and their teams face quite a challenge.  The fruits of their labors will determine what passengers will experience before, during, and after a flight and impact their perception of the world’s largest airline.  They cannot afford to make any missteps and they will be particularly mindful of the many problems that have arisen in other recent airline mergers.

They must align thousands of procedures, create new integrated manuals, and select and merge IT systems. In their spare time, they need to take American’s parent company AMR out of bankruptcy, pass regulatory muster at the Department of Justice, and align tens of thousands of unionized employees with new labor contracts.

The combined airline, to be based in Fort Worth where American is currently headquartered, will have 94,000 employees, 950 planes, 6,500 daily flights, eight major hubs, and revenue of roughly $39 billion.  It will be the world’s largest airline by passenger traffic, neatly eclipsing United Airlines and Delta Air Line, the current and former holders of that title.  The new American will be the leader in several markets including the East Coast, the Southwest, and South America, although it will continue to be overshadowed by Delta and United in Europe and Asia.

Some decisions will take months to sort out, such as deciding which IT systems to use for reservations and operations.   In an interview with Frequent Business Traveler, US Airways senior vice president of planning and marketing Andrew Nocella said that it would be “premature” to say which system the combined airline would select going forward but that it would be a 12 to 18 month-long process.  “American has Sabre and US Airway has Shares but if you look at mergers that were successful, you look for where the least disruption would be [in a system conversion].”

Also, prior to the merger announcement, the airline got a head start on labor negotiations, as many employee workgroups accepted transitional merger agreements.  Despite this, there is still much work to be done on the labor front.

Another area that the merger team will have to address is corporate culture.  US Airways is known for a far more relaxed environment than American, which can best be described as buttoned down.  Expect somewhat of a culture clash at the beginning although Parker of US Airways spent the years 1986-1991 at American so he should have somewhat of an appreciation of the larger airline’s way of doing things.

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