When it comes to mergers, crafting the deal is only half the battle. When one multibillion-dollar company buys another, proper integration is key to generating the biggest cost savings and revenue enhancements. For 2014, American Airlines Group (NASDAQ:AAL)offers one of the biggest plays on merger integration with major upside if the airline is successful and potential problems for investors if things get off track.

Airline merger
The airline industry has traditionally been one high on competition and low on margins. But through a series of mergers completed over the past several years, the number of major carriers has been greatly reduced.

The latest merger comes from the combination of US Airways and American Airlines' parent company, AMR. As American Airlines Group, the new carrier will be the largest in the world with "nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide."

In fact, this merger was under threat last year by the Department of Justice over concerns that the new American Airlines Group would have too much market power. In November, a settlement was reached allowing the merger to proceed, with the condition that American Airlines Group divest some slots at key airports.

Nonetheless, the new carrier's network remains strong and leaves many options for optimizing operations. So far, US Airways has joined American Airlines in the OneWorld alliance so the carriers can operate a codeshare whereby the airlines can book passengers on each other's flights. The carriers have also started reciprocity of elite benefits and usage of airline clubs, providing more options to high-revenue business travelers.

Over the next several months, look for integration progress to continue as airport operations are moved closer to each other and more aircraft are painted in the American Airlines colors. Within the next couple of years, American Airlines Group hopes to obtain a single operating certificate, which will officially make US Airways and American Airlines one airline.

Investors should watch progress on integration closely, as it will prove key to American Airlines Group's near-term earnings. A rougher integration at United Continental Holdings (NYSE:UAL) led to everything from reservation system issues to excessive operating costs. Everything from route alignment to labor issues will be under watch at American Airlines Group as the company tries to form the world's largest airline. But, trading at only 6.2 times forward earnings, American Airlines Group has a lot of upside potential if it can execute its integration plans while boosting revenue and controlling costs.

Now for the tough part
Hammering out a merger deal is one thing, but integrating companies to extract maximum profit is another challenge. American Airlines Group is trying to build another giant airline that will challenge its rivals who were themselves formed by mergers. Over the next couple of years, investors should watch integration progress closely to see if this merger can live up to expectations.

6 high growth stocks without integration risk
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Alexander MacLennan owns shares of American Airlines Group. He also has options on American Airlines Group. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Compare Brokers