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American Airlines has announced its merger with US Airways. The move is part of American's attempt to climb out of debt after filing for Chapter 11 bankruptcy in 2011.
American's creditors will end up with a majority share of the combined carrier and will also have five of 12 seats on the company's new board. Four of those seats will go to US Airways representatives, and the rest will be held by AA reps.
If the merger is approved it would create the world's largest airline, both in traffic and capacity. But would it be good for consumers?
What Happens Next?
Whether the merger will be beneficial for consumers is a big question and opinions differ. But the answer is important.
The move will provide American with the resources it needs to compete with other U.S. carriers. The airline will have more routes and economies of scale will keep overhead down, reports CBS News.
According to some experts, fares are only projected to go up slightly and it's possible those prices would have gone up anyway, without the merger. But there are other concerns for passengers.
In the short term, it could mean lost luggage, flight delays, and potentially reduced schedules for people who planned to fly on either airline, reports Forbes. Those growing pains could be a significant source of frustration.
Is This Merger Allowed?
The more important issue, legally speaking, is whether the merger will stifle competition.
U.S. law prohibits monopolies, which happen when a single company or a small group of them dominates the market of a particular industry. Allowing one company to take over drives down competition and disadvantages consumers, especially in markets served by only a few airlines.
That's why the merger of companies within the same industry is generally subject to approval. Federal regulators check the deal to determine if it is anti-competitive. A deal that makes one company too big and could stifle the industry won't be approved.
But will that happen in this case? Probably not.
It's true that this merger will cut down on the choices passengers have, especially when it comes to international business class travel. But in most markets, there are still lots of options for low cost travel within the United States from discount airlines.
Some think this might even boost competition because now that most major airlines are making some profit, they can work on improving amenities to woo customers.
If the merger goes through, American says both lines will continue flying their routes as expected. But the big change: they'll both fly under the American Airlines banner.