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February 15, 2013

US Airways lands merger with American

DALLAS — US Airways CEO Doug Parker has landed the big merger he sought for years. Now the soon-to-be CEO of the new American Airlines has to make it work.

The fleet needs new planes and new paint. Frequent flier programs have to be combined. American’s on-time performance must improve. And the airline needs to win back business travelers who have drifted to competitors.

After months of courting, the companies on Thursday announced an $11 billion merger that will turn American into the world’s biggest airline, with 6,700 daily flights and annual revenue of roughly $40 billion. It’s a coup for Parker, who runs the much-smaller US Airways Group Inc. and believes that mergers help airlines achieve higher revenue and consistent profits.

When the deal closes later this year, the four biggest U.S. airlines — American, United, Delta and Southwest — will all be the products of mergers that began in 2008. Those deals have helped the industry control seats, push fares higher and return to profitability. But it’s not easy to stitch two airlines together.

Some of Parker’s work has already been done. American parent AMR Corp. has cut costs and debt since it filed for bankruptcy protection in late 2011. Pilots from both airlines have agreed on steps that should make it easier to combine their groups under a single labor contract, a big hurdle in many airline mergers. But when the deal closes — expected by September as part of AMR’s plan to emerge from bankruptcy protection — there will still plenty to do.

The new company will have to combine the separate computer systems that American and US Airways use for reservations and other functions, while avoiding the glitches that have plagued United. The airline will have to fly better. Last year, American ranked 14th out of 15 airlines for on-time performance, according to government statistics. It canceled flights at a higher rate than its closest rivals. It had the second-worst rate of complaints, better only than United.

The executive likely to be charged with making the airline run more smoothly is US Airways’ chief operating officer, Robert Isom. He said his company fixed similar problems in 2007 through regimented maintenance schedules, stricter rules on how long to wait for connecting passengers, and using bonuses to encourage workers to hit performance goals.

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