Last weekend, American Airlines' (AAL 0.44%) merger with US Airways faced its biggest test: rolling out a combined reservation system. This phase of the integration process was a huge stumbling block in the 2010 United Continental (UAL 1.30%) merger as technology and customer service failures gravely damaged the airline's reputation.
Fortunately, American Airlines passed its test with flying colors. So far, the merger has been executed almost flawlessly. That will help American build its brand equity and gain valuable corporate market share.
No news is good news
The final US Airways flight took off on Friday night, after which company employees quickly changed airport signage from the US Airways name to American Airlines overnight. When customers arrived on Saturday morning, they were now checking in at American Airlines kiosks, even if they had originally booked their reservations through US Airways.
US Airways made its last flight on Friday. Photo: The Motley Fool
This meant that some reservations had to be moved from the old US Airways system to the new combined reservations system. Any bugs in that process could have left many passengers unable to check in or print a boarding pass. This happened to United when it combined the United and Continental reservations systems in early 2012.
American Airlines brought in lots of extra workers this weekend to help sort out any problems. There were a few minor issues like frequent flyer status perks not being recognized and confusion about which terminals certain flights were using at some larger airports. But airport lines remained manageable and almost all flights arrived on time.
To hedge against the possibility of a major technology malfunction, American Airlines operated fewer flights than usual at the former US Airways hubs on Saturday. By Monday morning, it was back to a busy schedule, with no apparent disruptions.
The importance of a smooth transition
At United Continental, the botched reservation system integration has had long-lasting impacts. Just a few months earlier, former American Airlines parent AMR had filed for bankruptcy. In a normal situation, the uncertainty caused by American's bankruptcy should have allowed United to poach a lot of customers from its rival, as the two share several overlapping hub markets.
United Airlines has never fully overcome its botched integration effort. Photo: The Motley Fool
Instead, the disruptions at United created an opening for American Airlines to gain market share, particularly among lucrative corporate customers. American aggressively targeted elite-level frequent flyers with status-match offers as complaints about United's service soared.
The worst thing for United Continental is that once corporate customers leave, they aren't likely to come back unless they are dissatisfied with their new airline. American's successful reservations system migration ensures that it will keep most of the customers it has won away from United in the past few years.
Time to focus on winning
With American now having overcome most of the big hurdles from its merger integration process, the company can focus on boosting profitability. On the revenue side, American will soon be able to start redeploying planes between the former American Airlines and US Airways hubs in order to more precisely match capacity with demand.
Longer-term, it needs to catch up with its rivals in the transpacific market, which is the biggest hole in its route network. In the past few years, American Airlines has added flights from its largest hub -- Dallas-Fort Worth -- to the top five business markets in Asia. Going forward, American will focus on growing its transpacific service out of Los Angeles.
American Airlines can now focus on maximizing its earnings power. Photo: American Airlines
In December, American Airlines will begin flying to Australia for the first time since the early 1990s, with daily flights between Los Angeles and Sydney. It also hopes to launch daily service from Los Angeles to Tokyo's Haneda Airport next year, if it can get suitable slots there. Other key business markets could follow in the next few years.
On the cost side, rather than cutting its headcount to eliminate redundancies, American Airlines has recently added employees to ensure a smooth integration. With the toughest parts of that process in the past, the company will be able to focus on cost-cutting and productivity initiatives in 2016. That should open up significant cost savings opportunities in the next year or two.
In short, American Airlines has completed a lot of the hard work needed to lay the foundation for long-term success. Now it's time for the company to fully exploit its competitive advantages in order to pursue CEO Doug Parker's goal of being the most profitable airline in the world.
