Industry is capricious, but few see as much perpetual instability as the airline industry.
With the Justice Department's failed lawsuit against the proposed merger between airline behemoths US Airways and American Airlines, it appears that we will witness the introduction of the world’s new largest airline as early as the end of this year. As this development is finalized, Tempe must wave goodbye to one of its two Fortune 500 companies, and the thousands of employees who must now relocate to its consolidated headquarters in Fort Worth, Texas, though the final deal is still up in the air.
The deal materialized in response to American Airlines’ need for financial support in light of their 2011 filing for bankruptcy, mirroring the quandary faced by US Airways in 2005 as they were struggling to stay afloat and looked to merge with America West. The America West Airlines-US Airways merger is what brought US Airways to Tempe in the first place, as the negotiations designated Tempe as the new consolidated headquarters.
Many in the Valley have been left with questions about what led to this US Airways- American Airlines merger that will leave Tempe bereft of such an important player in the local economy.
The answer lies in an event over a decade removed from today, but still strongly influencing the decisions of contemporary airlines: the attacks on the World Trade Center and the Pentagon on Sept. 11, 2001.
Sept. 11 severely damaged the airline industry by drastically reducing passenger demand, and halting airport operations for an extensive period of time, resulting in a crippling loss of revenue. However, few corporations experienced the ensuing financial distress as acutely as US Airways.
As the dominant airline flying through Ronald Reagan Washington National Airport, which had activity suspended in the months following the attacks, the airline took losses so heavy that less than a year later, the airline was forced to file Chapter 11 bankruptcy in 2003, and did so again in 2004, surviving by virtue of the Air Transportation Safety and System Stabilization Act.
Efforts were made to be as austere as possible in order to pay back the loans granted to them by the Air Transport Stabilization Board. In fact, the loss of revenue caused by the Sept. 11 attacks necessitated that US Airways become a better company.
From its merger with America West, completed in 2006, to its abandonment of the high cost hub in Pittsburgh, US Airways prepared itself for financial success in the coming years.
Where US Airways made progress in the post-9/11 years, American Airlines faltered.
Being among the strongest airlines at the time of the Sept. 11 attacks, American Airlines was one of the few airlines to avoid filing Chapter 11 in the few years following the attacks, and received no loans from the Air Transportation and System Stabilization Act due to their stability.
Although business was trying for all airlines in the years following 9/11, American Airlines did not face as dire a situation as its competitors, thus they did not have to improve themselves as quickly or significantly. In fact, the company garnered some negative attention after their CEO planned to distribute executive bonuses in the wake of post-9/11 restructuring, fully exposing the superior financial situation in which the airline found itself.
The decisions made by each respective airline in the aftermath of 9/11 set the stage for the drama that unfolded in the subsequent decade, and while US Airways rose to the occasion in their distress, American Airlines was the victim of a changing business landscape in which their competition became stronger through their tribulations.
Reach the columnist at bjmurph2@asu.edu
