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What to Expect From the New American Airlines

DOJ settlement should produce a more competitive airline industry

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Congratulations to US Airways (LCC) CEO Doug Parker — the airline mega-merger he’s spent years pursuing has finally been cleared for takeoff.

Less than two weeks before the scheduled start of an antitrust lawsuit to block US Air’s planned merger with American Airlines, the Justice Department inked a deal to settle the matter. In return for the DOJ dropping the lawsuit to block the merger, the airlines must divest of facilities at seven U.S. airports — including 69 takeoff and landing “slot pairs” at Washington D.C.’s Reagan National Airport and New York’s LaGuardia.

Tuesday’s antitrust settlement with the Justice Department allows the $11 billion merger between American Airlines (AAMRQ) and LCC to move forward, creating a global colossus with more than 6,700 daily flights to 336 destinations in 56 countries.

US Air President Scott Kirby told reporters Tuesday that the next few weeks will be spent working through the legal issues associated with the close, as well as a number of employee issues. If all goes well, customers will begin to see the first signs that US Air and American are a single airline on Jan. 7, with reciprocal frequent flyer miles. That will formally kick off the process of integrating systems and obtaining a single operating certificate.

Looking ahead, here’s what it all means for the airlines, their competitors and their investors:

LUV, JBLU likely to benefit from divested slots: The DOJ has basically earmarked the divested slots for low-cost carriers, so look for the big winners here to be Southwest (LUV) and JetBlue (JBLU) — both of which have targeted East Coast business travel markets for future growth and have a history of scooping up divested slots in prime markets. Virgin America, however, which went on record opposing the LCC-AAMRQ merger, also could make a play for the D.C. or New York assets.

United and Delta face a tougher competitor: The new American will wield considerable competitive strength — despite having to divest prime assets in two hot East Coast markets. And Parker was not afraid to drop the challenge on United (UAL) and Delta (DAL), telling reporters, “The real change to our competitive dynamic is we’re…creating a stronger company that will be able to take more customers more places and create a third global competitor to the other two global networks of United and Delta.” US Airways was already winding down its participation in the Star Network codeshare alliance in preparation to migrate to American’s globally powerful Oneworld alliance. The official transition will begin early next year.

Article printed from InvestorPlace Media,

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