(5 of 5)
US Airways thinks of itself as the perfect partner to fill in American's network voids. It would bring more than 8 billion scheduled ASMs, including a big chunk of business in the Northeast. The two companies overlap on only 2% to 3% of their direct routes, so there's no antitrust issue. A combo would allow American not only to connect more dots worldwide but also to add hubs in Phoenix; Charlotte, N.C.; and Philadelphia. The Philly hub would give American another international gateway to take the pressure off JFK. "If the merger could be effected with US Airways' senior management put in charge, it could be a terrifying competitor," says Boyd.
Who will win? Certainly, unsecured creditors, which include labor, will have a big say. American has $29 billion in debt and has hocked everything from terminals to landing slots at Heathrow and Narita airports. It even sold a bazillion frequent-flyer miles to Citibank for an advance of $890 million. Those distressed debt securities are being accumulated by interested parties like Appaloosa, a hedge fund that also owns a stake in US Airways. Vicki Bryan, a transportation-bond analyst with Gimme Credit, says the market "is sending a clear, distinct message that the best outcome is that American Airlines be run by someone else."
Such talk won't rattle Horton. "Because he's smart, he's calm--always calm--well organized and his own ego is not wrapped up in the decision he makes," says Roger Altman, chairman of investment bank Evercore Partners, who has worked with Horton. American is big enough to thrive without a merger, although Horton isn't unalterably opposed to one. He prefers that the company exit bankruptcy first, which should happen this year. People who know him say he will support the deal that creates the best value for all stakeholders.
Whether American stays independent or merges with US Airways or whether Horton or Parker is CEO may not matter to travelers very much. The carriers were running at 80% of seat capacity early last year and not making a profit. According to a study by consulting firm Oliver Wyman, the network carriers needed to sell one more seat in coach and a half a business-class seat per flight to break even. That's difficult at the margins.
The solution is to raise prices, which they have been doing. Fares will continue to rise because fleets aren't growing as fast as the traffic. Lots of new jets are on the way--bigger jets--but older, gas-guzzling jets are headed for scrapyards. You're not going to be stuck in those 50-seat commuter jets much longer. For smaller cities, it's a mixed bag: fewer flights but larger planes. For some, alas, it will mean no flights at all.
Curiously enough, some of American's new jets are made of composite materials, which will give the fuselage a dull finish. The shiny silver ships that had been American's hallmark are going to have a new look. And so, one way or another, is American.
FOR MORE COVERAGE OF AMERICAN AIRLINES, GO TO time.com/americanairlines