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American Airlines Changes: Cuts, Consolidation & Competition

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The US Airways and American Airlines merger was the worst-kept secret in aviation in the last year, but there remains some confusion on what comes next. Peter sat down with the Dallas Morning News’ Terry Maxon to discuss job cuts, route consolidation and airfare competition.

Peter Greenberg: Would you agree, the merger was the worst-kept secret?

Terry Maxon: At one point I put on our airline biz blog they know there’s going to be a merger, we know there’s going to be a merger, everyone knows there’s going to be a merger. It’s like a pregnancy, show us the baby already.

PG: Going back to the original filing of American Airlines back in November 2011, as part of their original restructuring program they said they could be laying off as many as 13,000 employees. Then Doug Parker from US Airways goes directly to the American unions and offers to only lay off 6,000. The unions had a choice: Do you want to be stabbed or shot? They chose stabbed and here we are with US Airways essentially controlling the new American Airlines. The CEO of American Airlines Tom Horton is getting a lovely parting gift ($20 million) and is sticking around in title only for a while. At the moment, the creditors seem like they like the idea, bond holders seem like they like the idea, the stock holders seem like they like the idea, does Terry Maxon like the idea?

TM: Mergers are always good at the offset and the reality of how good they are depends on how it plays out. The Delta-Northwest merger went very well. The United, Continental is still working through its problems. The AirTran/Southwest merger, even though it was approved in May of 2011 may not be fully implemented for 1.5 to 2 years.

Mergers are like marriages, some turn out good and some turn out badly and often you can’t tell on wedding day how it’s going to be 10 years later.

PG: American Airlines now says they’re the largest airline in the world with a market evaluation of $11 billion and everyone’s applauding. Listen when banks merge they don’t add tellers and branches, they shrink and I fully expect this new airline to shrink as well. In fact you just reported that American Airlines has dropped below 60,000 employees for the first time since 1987, so it’s already starting.

Maxon: I’ve tried to guess what the effect of the merger would be, it’s been tough because companies cut back it’s when operations duplicate themselves. In this merger, at face value, there isn’t that much duplication on the operational side. You can’t point to a particular hub that they would close or that they would shrinkthat’s years down the road.

You mentioned the cuts in bankruptcy, those are still playing out for American Airlines and they will continue playing out before the merger happens and people are taking early buy outs.

There were 2,200 flight attendants who were taking early outs; American was hiring 1,500 flight attendants. The numbers obviously suggest that they’re getting rid of more flight attendants than they are bringing in. It’s in flux and the merger just increased uncertainty about where it will all shake out.

There will also be some duplication on the management ranks, but executives understand that it happens and it is where the layoffs will be at least preliminarily. Further down the line, it seems like the airlines won’t shrink that much beyond where it would shrink naturally.

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