Yet, on the reservations systems side, American Airlines has shown it doesn’t need a merger for a system error to anger passengers as an incident earlier this year exposed. Whether or not this has any bearing on how the reservation system will perform in a merger is not certain, but it will make some investors question how well the two airlines can merge their systems.
Beyond the costs
It is almost certain the new American Airlines will face some merger headwinds and a fair share of merger-related costs, but long term investors need to look beyond the costs of just the next few years. The AMR-US Airways merger is just the latest example of industry competition reduction and a realization of the economies of scale available to larger airlines. Fewer competitors gives carriers more room to raise fares and increase earnings. Already analysts are projecting strong earnings growth over the next few years for United Continental Holdings Inc (NYSE:UAL), a sign of a recovering industry and the completion of the airline’s merger. If the new American Airlines can do the same, the skies could be bright after some near-term turbulence.
Alexander MacLennan owns shares of Air Canada and Delta Air Lines. He also owns the following options: long $22 Jan 15 Delta calls, long $25 Jan 15 Delta calls, long $30 Jan 15 Delta calls, long $17 Jan 15 US Airways calls. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Preview of the Next Airline Merger originally appeared on Fool.com is written by Alexander MacLennan.
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