More Integration at American Airlines Group

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Since the Dec. 9 merger between US Airways and AMR, the new American Airlines Group (NASDAQ: AAL  ) has been working to integrate operations. Although it will take over a year to fully integrate the carriers under a single certificate, progress is already being made.

Codeshare and alliance
A stronger network was a core reason for the merger, and American Airlines Group has already been taking actions to get the most out of it. According to the Dallas News, the two airlines have linked up most of their network through codesharing.

Codesharing is a common practice in the airline industry, as it allows customers to book flights operated by different airlines through a single carrier. This method increases both flexibility and network presence.

On March 31, American Airlines Group will take the codeshare one step further by moving US Airways from the Star Alliance, alongside United Continental (NYSE: UAL  ) , to OneWorld where American Airlines operates. This will allow other members of OneWorld to benefit from US Airways' network and direct US Airways traffic through other OneWorld airlines.

Frequent flyer programs
One of the first steps taken at American Airlines Group has been the reciprocity of American Airlines' AAdvantage program and US Airways' Dividend Miles program. Travelers are enjoy benefits of the programs at either carrier.

A recent survey from MileCards shows US Airways customers could wind up better off now. The survey was conducted in Dec. 2013 and serves as an ideal last minute picture of airline miles programs since it's from the last month before the reciprocity was implemented. The results from the 1,600 participants routinely place AAdvantage among the best in each category and US Airways among the worst.

Competing with American for the top spot was Southwest Airlines (NYSE: LUV  ) , which often scored at the top of the standings. United Continental won in customer loyalty as the airline took the title with its MileagePlus program, where 41% of customers said they chose United for its frequent flyer program.

It will be interesting to see over the next year whether Dividend Miles rises to the level of AAdvantage or AAdvantage falls to the level of Dividend Miles.

Moving day
While it's not difficult to move planes themselves, moving ground operations takes considerably more effort. In airports across the country, American Airlines Group will be moving operations of American Airlines and US Airways to create the most efficient operational structures.

In late February, American Airlines moved its operations from Terminal 3 to Terminal 4 at the Phoenix Sky Harbor International Airport. With this airport being a US Airways hub, the US Airways operations dwarfed those of American Airlines. Look for a lot more movement of operations over the course of 2014 as the carriers look for the most efficient set ups.

Labor unions
While not an action taken by American Airlines Group itself, agreement among unions is important for the integration of the airline. In late February, the flight attendants of US Airways approved an agreement that will allow them and the flight attendants of American Airlines to bargain for a contract.

This agreement brings together two unions: The Association of Flight Attendants-CWA, representing those at US Airways, and the Association of Professional Flight Attendants, representing those at American Airlines. The two unions will craft a proposal and present it to management in negotiations over the next several months.

Building one airline
There's still a lot to be done at American Airlines Group, but current progress looks positive for the airline. Integration risk has been seen as a major risk factor, especially after the turbulent merger of United Airlines and Continental Airlines, and successful execution of the integration stands to benefit the stock through reduced risk and increased synergies.

Airlines investors should monitor the progress at American Airlines Group to see what effects it has on the entire industry.

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  • Report this Comment On March 03, 2014, at 9:58 AM, Inspectigator wrote:

    They are a long way from becoming "one airline". When you buy a ticket on American Airlines, you are more likely to end up flying on another airline than on American Airlines, as they contract out more flying than they fly themselves. This is why SouthWest is in a much stronger position to survive the pilot shortage that is already taking bites out of the other airline's networks.

    American and the other majors need to start bringing their flying back in-house before it is too late. As small airlines have to decide which routes and passengers to continue flying, the majors are going to find themselves bidding against each other to keep Republic, SkyWest, and the other dozen regionals, flying their network passengers instead of their competitor's.

    The majors will get little argument from the regional employees or their current employees in merging labor groups, it is mutually very beneficial, especially as the regionals begin to shrink faster. Without merging their regional flying, the majors face losing up to half their domestic flying, leaving SouthWest stronger than ever.

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Alexander MacLennan

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.

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