Is there really a difference between mainstream low cost and network carriers? The merger between American Airlines and US Airways might answer that.
While on the surface we see two legacy carriers and a similar merger as the United/Continental tie-up, we have for the first time a merger between two large airlines with different business models.
When new CEO Doug Parker led America West in its takeover of bankrupt US Airways in 2005, he changed the re-constituted airline’s stock ticker to LCC.
The not-so-subtle statement was symbolic of the point of differentiation and basis of competition for the new airline.
The new US Airways has followed through, forgoing in-flight entertainment, wifi, and overseas expansion in order to drive down costs and maintain a profit from O&D and connections through their core cities of Phoenix, Charlotte, Philadelphia, and Washington-Reagan.
Membership in the Star Alliance allowed it to outsource fancy international connectivity and frequent flier benefits to United and non-US partner carriers.
It similarly under-invested in consumer IT, with US Airways’ web site looking like it hasn’t been updated since 1998, and no mobile apps.
To its credit, it might stuck with a first class product and lounge network, but that could have been primarily to hit mandatory Star Alliance requirements, knowing that the alliance feed was critical to the airline’s revenue.
Contrast that with American Airlines, which has pursued a strategy of premium international travel, new plane orders, cabin upgrades, and fare bundling (as a contrast to fare-unbundling, American’s current approach is to up-sell you on additional features, not take away currently "free" features and charge you separately for them).
It continues to invest heavily in the corporate business and major-carrier perks.
While cutting costs in bankruptcy, American has been investing in increasing yield, such as a redesign of their flagship JFK-LAX/SFO service which will retain a three-class layout, breaking even from United, which is ditching a true first-class in its new configuration debuting this spring.
A three-class domestic product might be the antithesis of low cost, and highlights just one obvious gap between service levels at the two carriers.
One area the carriers have been consistent is in their combative relationship with the GDSs, especially Sabre.
Both have sued (and been counter-sued) by Sabre over anti-competitive behavior. Whereas American recently settled with Sabre, US Airways has an outstanding lawsuit and Sabre’s countersuit was filed just last month.
Clearly creating more independence and control over distribution is not a strategy limited to one type of carrier, but a broader macro industry trend.
As Southwest's growing costs have taken away much of its competitive advantage (accelerated by its acquisition of AirTran), the LCC and network carrier models have blurred.
A US Airways management take-over of American is likely to further gray that line, with a tactical de-costing of American’s model to more resemble US Airways’ profit enhancing policies of the last five years.
But it remains to be seen if Parker can successfully do that while retaining the network carrier flexibility and policies, such as the luxuries frequent business travelers expect from the nation’s largest carrier.
Even accepting American’s recent extension of Sabre’s reservation platform as part of the litigation settlement would be something hard to stomach for Parker, who kicked Sabre to the curb in favor of HP Shares (the low-cost leader, it would seem) in the 2005 merger.
Time will tell if there’s an appropriate marriage here.
History suggests that companies with clearer strategies win. US Airways’ LCC stock symbol alone might have been worth more than meets the eye in making the airline’s post-merger success over the last 8-years.
Parker will now have the challenging of turning in an LCC for an AMR, and somehow still making a profit.