Question

Case Study: Merger of US Airways and American Airlines

In February 2013, US Airways and American Airlines (AA) announced plans to merge, a union that would create the world’s largest airline. Because this was the fourth major U.S. airline merger in recent years and because the merger would take place in the context of bankruptcy protection sought by American Airlines in 2012, the parties anticipated intense scrutiny of the merger’s competitive effects by the U.S. Department of Justice (DOJ) and thus retained FTI Consulting subsidiary Compass Lexecon to perform the economic analyses required to address the DOJ’s likely concerns. The DOJ was expected to focus on whether the deal would decrease competition in the commercial airline industry enough to permit airlines to increase prices in the various markets served by the merging parties. The extent to which restrictions on operations and/or pricing — designed to mitigate any anticipated competitive effects — were required as conditions for merger approval.

With regard to Compass Lexecon’s work on the merger, Bruce Wark, who led AA’s legal and regulatory efforts during the merger process, indicated that "We chose Compass Lexecon to evaluate and quantify the consumer benefits arising from our merger. Their economists have a deep understanding of the airline industry, and they have the reputation and knowhow to convince both regulators and judges. Their work was instrumental both in defending against the claims filed by the DOJ and in finding a resolution with the DOJ that allowed us to consummate our merger."

Similarly, Howard Kass, who led US Airways’ legal and regulatory efforts during the merger process, indicated that "Compass Lexecon was a valued member of the U.S. merger team. Having worked successfully with Compass Lexecon on several other projects in front of regulators, we knew that Compass Lexecon would bring a level of professionalism, expertise and candor that is unmatched by others. Compass Lexecon’s devotion to its clients, knack for detail and commitment to finding solutions where none seemingly exist are why we chose Compass Lexecon."

FTI Consulting's Role: Subsidiary Compass Lexecon

Teams of economists from Compass Lexecon had begun working on the engagement when US Airways first expressed interest in acquiring American Airlines after it had filed for bankruptcy protection in 2012. The teams analyzed massive amounts of data on the airlines’ traffic and pricing practices pertaining to various nonstop and connecting routes in order to assess the potential overall competitive effects of a combination, as well as effects on markets involving Reagan Washington National Airport in particular — where many anticipated that DOJ would require the airlines to surrender a significant number of takeoff and landing slots as a condition for merger approval.

Based on these analyses, the Compass Lexecon team prepared whitepapers and held consultations with DOJ staff that demonstrated that the transaction would have the effect of creating a larger network, which would be able to operate more efficiently and effectively, thereby providing new and better options to all airline consumers. By studying the outcomes of recent mergers, as well as pricing and traffic on routes with

different numbers of competitors, the Compass Lexecon team also presented analyses demonstrating that these benefits would swamp any potential competitive harm as a result of the transaction.

Despite this evidence, the DOJ surprised the carriers by filing suit to block the merger in August 2013, claiming, among other things, that elimination of US Airways’ Advantage Fares Program, once the merger was consummated, would increase airfares for consumers.

Outcome: A pre-trial settlement allowed the deal to proceed

In response to the lawsuit, the Compass Lexecon team shifted its focus to converting its prior work into expert reports and presentations that demonstrated that the transaction would create significant consumer benefits with minimal competitive harm, including heightened focus on analyzing and rebutting the DOJ’s concern about Advantage pricing. In November 2013, soon after Compass Lexecon filed its evidence — and just weeks before the trial was scheduled to begin — a settlement was reached that required limited (and anticipated) concessions, including the divestiture of 104 slots at Reagan Washington National Airport and 34 slots at LaGuardia Airport.

The settlement, which was upheld by the courts in April 2014, kept the parties’ merger plan intact and will allow $1 billion in estimated annual synergies arising from the transaction to be realized.

OD Assignment:

Your department is responsible for developing, implementing, and evaluating all
Change Management interventions for the new “American Airlines Group Inc. (NASDAQ: AAL)”. You are specifically in charge of creating the change management plan for:

Human Capital Strategy ?

Use the Five Stages of Organization Development

Determine the diagnostic tools

Select a Systems Approach to manage the change

Outline a plan to evaluate the effectiveness of the change process

Answer 1

During the last 15 years in the united states, a burst of airline mergers has created a group of mega-airways, including American, that rank as 4 of the world five largest with the aid of passengers carried. However combining airlines has proved difficult and every now and then created recent problems for harried travelers. Even as some of the mergers have labored well, others chiefly between United and Continental have required regular triage, leading to tech malfunctions and ordinary, headache-inducing delays and flight cancellations.

Thats why, for US Airways, its last segment as a company could even be its main.

Mergers within the airline industry are particularly elaborate, professionals say, since they require a stitch-up of tricky pc programs and policies all of which have got to be accomplished while serving buyers with out interruption. A crisis at just one airport can ripple across the nation.

putting everything collectively is usually a nightmare,stated Michael Boyd, president of Boyd team global, an aviation consulting organization.

On paper, US Airways and American merged two years ago in an $11 billion deal that would create a higher rival to United and Delta. But Oct. 17 is the date for what they name the proper integration the point at which reservations techniques are fused and US Airways ceases to function its own subsidiary airline. If all goes good, purchasers will simplest realize the new airport signage, with all US Airways logos peeled away. However the final time US Airways tried this in 2007, with the usa West there used to be full-on bedlam: Kiosks of the merged airways couldn't keep up a correspondence, and contours snaked across terminals. In Charlotte, frantic workers surpassed out sheets of paper reading, Please go house and take a look at to get a seat on a later flight, consistent with information bills from the time.

Officers at American say they ready close to two years for this day. For the sake of consistency, they tweaked nearly 500 US Airways policies. (US Airways didn't permit checked pets; quickly it will. It didn't enable unaccompanied minors to make connections; now it does.) They mixed standard flier packages. US Airways switched into the ­Oneworld alliance, a bunch of cooperating world airways that already included American. Primarily over the last yr, US Airways has surpassed off bits and elements of its operation to American headquarters even as shuttering its Twitter account, which now reads, Please comply with @AmericanAir for updates and client support.

I tell folks, were engaged however no longer married, mentioned Amy Mason, a US Airways customer carrier supervisor in Charlotte.On October 17, well be married.

whilst in wind-down mode, US Airways remains anything of a bizarre half-airline. It's feasible to buy a flight on AA.Com, check in at a US Airways kiosk and board a aircraft painted in US Airways colors. In your seat pocket, you get an American airways protection card, an American airlines magazine and a US Airways market menu. The flight attendant would put on an American airways lanyard but cross out coffee with US Airways sugar packets.
However the airways are nonetheless fantastically separate. For now, should you buy an American flight however need to travel standby on a US Airways flight, US Airways customer provider agents can't make it occur.

I'm looking to help you, says one agent in Charlotte on a latest afternoon. She wears a US Airways shirt and stands in front of a purchaser carrier signal in the American font. She says she works for US Airways.

She gets on the telephone with a relevant American reservations desk and pleads for support.

Enter drift phase?she says with uncertainty into the cell, the begin of a 10-minute conversation.

She punches some figures into the computer.

Clack clack clack clack clack.

Oh god, that doesnt appear correct.

Clack clack clack clack clack.

Sorry, i will be able to do some thing, she says after placing up. You have got to call American. We willt touch it. Its their flight record.

She tries to present a smile.

Were nonetheless separate airlines, she says. a number of extra weeks and well be golden.

So many moving components
The alternate, come Oct. 17, shall be most profound at the united states Airways hubs Phoenix Sky Harbor international, Philadelphia worldwide, Reagan national and Charlotte Douglas international. In Charlotte, the nation eighth-busiest airport, ninety percent of passengers fly US Airways. Roughly four in 5 passengers who travel by way of Charlotte connect to one more flight, that means the operations at this airport, extra so than most hubs, can assess whether americans on any given day journey easily.

The U.S. Airways supervisor answerable for the transition in Charlotte, Erin Frey, forty four, describes an difficult affair where practically each part of the airport has to vary. She desires new inventory paper for tickets. New computerized scanners. New science for routing baggage on its long trip through the bowels of the terminal.

So many relocating elements that people will not ever realize, said Frey, who has worked for the airline for the reason that 1997. Its like whilst you're going to peer a play. A lot is occurring in the back of the curtains. But when you pull up the curtains, consumers simply get to see the product.

In a deep, windowless portion of the airport obtainable simplest to employees, US Airways holds everyday classes, from 6 a.M. Until nighttime, for ticket dealers who ought to re­be trained so much of how they operate. On nowadays, 17 employees sit at a financial institution of computers, leafing by means of the instructional materials in a 493-page guide. Some have diet sodas or red Bulls next to their keyboards. For the period of lulls, the instructor passes out Swedish Fish. A couple of American airways posters on the school room walls exhibit smiling workers and browse,Are you capable? I'm.

k, flip to web page 409, the instructor, Rosalyn Braxton, says.

The marketers have to apply a couple of ticketing eventualities utilising the American approach.

State of affairs No. 6: dawn Gober would favor a window seat.

State of affairs No. 10: Kathy Hains would like an aisle seat and is touring with a lithium battery operated wheelchair.

State of affairs No. 23: Robert Isom is an armed FBI agent. His badge quantity is 75864.

They haven't even given us the hard stuff yet, says Alexandra Case, one agent in the school room. In the real world its like, howdy, I'm 6-foot-2, and i would like an exit row. And your exit rows are all gone. So how will you manipulate that?

airways are typically referred to as tech firms with wings, and for years, US Airways has used a reservations method known as Shares that's the heart of its operations. American has used a system called Sabre. They're alike within the manner of a pc and a Mac: They accomplish an identical ambitions but include their own jargon and shortcuts.

To reduce the percentages of a frantic Oct. 17, US Airways in view that July has regularly moved its reservations into the American method, instead than doing a complete switch overnight. This drain-down, as officials call it, follows the model utilized by Delta in a tender merger with Northwest.

Probably the most challenging mergers including United-Continental and the united states West-US Airways have come when the surviving airline adopted the reservations procedure of the smaller airline. Meaning nearly all of employees, instead than the minority, needed to be trained something new. Due to the fact that the merger with Continental in 2010, United has had at the least 5 primary computer malfunctions. In 2013, the airline used to be fined for taking too long to reply to refund requests, whatever it blamed on merger-related tech disorders.

We knew we needed to take the greater service process, stated Kerry Philipovitch, the American airways senior vice president of customer expertise. It wasn't even a consideration.

in poor health-fated procedures
staff at US Airways say its best becoming that the airline's ship-off caps a tumultuous technology of aviation mergers.

US Airways, opening from the 1980s, was an emblem for mismanagement of the enterprise. The airline, then known as ­USAir, was infamous for top fares, and its principal purpose was to expand market share instead than establish financially attainable routes. It grew, main, by means of mergers. With Pacific Southwest in 1987 and with Piedmont a couple of months later. In the early Nineteen Nineties, it assumed a sequence of japanese Seaboard shuttle routes by means of purchasing the stays of an airline operated by means of Donald Trump. Finally, the airline gathered an outstanding record of go-country and international routes. But all of its hubs had been concentrated within the mid-Atlantic.

I suppose at that time the problems had been survival and coping with the short-time period disorders of controlling the price stage, Edwin ­Colodny, the airlines chief govt from 1975 except 1991, stated in a mobilephone interview from his house in Burlington, Vt. That, and retaining the head above water.

The airline, sapped by using one of the vital enterprises perfect labor expenditures, zigzagged within the Nineteen Nineties between unwell-fated techniques to elevate gains. In a single day, it ordered 400 new Airbus jets. It started a low priced operation, MetroJet, that was once designed to compete with Southwest however ended up cannibalizing its own trade. It failed in a merger with United. After 9/11, US Airways was hit above all tough, considering the fact that it trusted national, which was closed for a few weeks. It was once dropping $3 million a day, precipitating a slide out of business. The restructuring was rapid and incomplete. In 2004, it filed for Chapter 11 chapter safeguard again.

Then, along came america West.

Regardless of the technical problems that ensued, the merger made sense, industry gurus say, and helped ultimately turn around the airline. US Airways trimmed a few of its East Coast hubs and won a foothold in Phoenix. And even though the new airline stored the U.S. Airways name, the usa Westâs executives, including chief executive Doug Parker, crammed all of the top positions.

And it was these same executives who, establishing in 2011, reached out to American airlines collectors because it, too, was emerging from bankruptcy defense. At present, Parker runs American airways.

relatively, US Airways took over American, Boyd, the consultant, mentioned.Its simply that they stored the American title.

The disappearance of US Airways shall be marked with simplest slightly symbolism. The ultimate crimson-eye will be given the flight quantity US 1939, in tribute to yr the corporation started operations as All American Aviation. Earlier than hitting San Francisco, the airplane may have headed via Philadelphia, Charlotte and Phoenix nearly all of the airline hubs. But some workers say they've discovered to have little nostalgia.

Asked about the merger on a latest US Airways flight, one flight attendant chuckled.

I'm from Piedmont. Started in 1978, she mentioned. five mergers later, here i'm.

An prior version of this text used the wrong flight quantity for the airlines ultimate crimson-eye. This version has been corrected.