This guy's the limit

American Airlines-US Airways merger: Why the smaller airline’s boss will be CEO

February 7, 2013
February 7, 2013

The biggest sticking point right now in the impending American Airlines-US Airways merger isn’t the money or the labor contracts or even the name. It’s the man who will run the merged airline.

It’s a debate, and conversation that is being played out in aviation circles, boardrooms, and among AMR Corp.’s creditors, and all signs point toward US Airways CEO Parker taking the CEO slot and being assigned the task of heading a merged airline, should the deal go through.

Various reports suggest that US Airways president Scott Kirby would come along with Parker for the ride, and CEO Tom Horton could stay on in a lesser role such as vice chairman.

Their respective track records point to Parker getting the nod in a landslide, although defenders of American CEO Horton argue he’s capable, and being somewhat unfairly tainted with the baggage and legacy of his predecessors.

As to their track records, American Airlines has been compiling years of red ink, is still currently in bankruptcy, and its operational woes are legion.

The smaller US Airways under Parker, meanwhile, boasted record profits in 2012, and it is consistently out-performing American in metrics such as on-time arrivals and mishandled bags, for instance.

Pundits agree that although American has distinguished itself over the years in pioneering frequent flyer programs, in yield management, and other technical areas, there is a dire need to change the culture at the airline, and that will take much more than a new logo and livery.

Management reset?

Inevitably, some heads will have to roll.

Darryl Jenkins, an airline analyst who knows both Parker and Horton, credits Parker with straightening out AmericaWest, where he took on the CEO role in September 2001, and for successfully leading its acquisition of, and merger with, US Airways in 2005.

“Parker was good at changing operations, he brought in good people, and they cleaned up their pricing,” Jenkins says of Parker’s tenure at AmericaWest. “AmericaWest was always a dog with fleas until Parker cleaned it up.”

Jenkins says that both executives are “bright” and “aggressive,” although neither has an enviable track record with labor.

“They are equally bad,” Jenkins says.

Horton’s main disadvantages, Jenkins argues, are that American Airlines didn’t take the bankruptcy route much earlier and that he served with his predecessor, Gerard Arpey.

“That’s Horton’s baggage,” Jenkins says.

Jenkins says American Airlines’ biggest problems over the years rest with the nature of its fleet, and it couldn’t have resolved those issues outside of bankruptcy.

Misappropriated baggage?

Rick Seaney, the co-founder and CEO of FareCompare, agrees with Jenkins that Horton is hamstrung in that “he inherits the last 15 years of acrimony.”

Although neither Horton nor Parker is going to pick up an AFL-CIO man of the year award anytime soon, Seaney believes that US Airways’ unions may be willing to tolerate Parker while American Airlines’ unions yearn for anyone other than Horton.

Seaney, who seemingly monitors airfare fluctuations 24/7, credits Parker for turning US Airways into a “pretty scrappy and profitable” airline, which he adds is difficult to do when you are only the number four or five airline in the country.

But, get ready for some rough times if the two airlines merge regardless whether it’s Parker or Horton who takes the helm.

Jenkins notes that airline mergers are “not for the faint-hearted” and he counsels getting Prozac and Dramamine at the ready.

And, while American and US Airways toil with a multi-year integration effort if the deal goes through, and United is still having its operational nightmares from its merger with Continental, Jenkins notes that Delta did its heavy lifting and got its merger with Northwest done years ago.

“Delta is going to gain from this,” Jenkins says.

While US Airways has a limited international presence, Parker isn’t exactly steeped in the complexities of running a global airline.

New thinking in short supply

“What the new global airline needs is new thinking that can make it to the marketplace quickly,” says David Wardell, an aviation and hospitality consultant. “While the US Airways team hasn’t presented a plan, nothing in the AMR recovery plan provides confidence that management is prepared to do more than manage essentially as airlines have for years.”

Wardell puts Parker’s idea for US Airways to swap slots with Delta at LaGuardia and Washington-Reagan National airports, respectively, in the innovation column.

“Under the deal, both airlines would gain slot capacity at airports where it would be of most valuable, while giving up capacity where it was less valuable,” Wardell says. “It was innovative because it involved backing away from the ‘more is always better’ approach in favor of thinking strategically about where such assets make the most sense.”

Meanwhile, George Hobica, founder of Airfarewatchdog, says both Horton and Parker are capable managers, would be qualified to head a new American Airlines, although his endorsements aren’t exactly ringing ones.

“They are certainly not the worst airline CEOs in history,” Hobica says.

Heavy mettle

“US Airways has come back from the dead,” Hobica says, giving Parker much of the credit. “They’ve put an emphasis on improving service, their on-time record has improved, and they have new planes.”

On the other hand, Horton has had to run “a bigger and messier airline,” and has done a good job getting American through bankruptcy so far, Hobica says.

“Tom Horton has certainly proven his mettle,” Hobica adds.

Horton worked at American from 1985 to 2002, when he left to become CFO of AT&T. He returned to American in 2006, becoming president of AMR Corp. and American in 2010, and he ascended to the chairman and CEO roles when AMR Corp. declared bankruptcy in November 2011.

Parker became CEO of AmericaWest in September 2001, and CEO of US Airways in 2005 when the two airlines merged.

From 1986 to 1991, Parker worked at American Airlines, and his time there overlapped with Horton’s.

The two are said to be friends, but mega-mergers and jockeying for the top position at any large corporation can strain relationships.

A slot swap and merger-integration pain are definitely in the offing.

Dramamine anyone?

This story originally appeared on SKIFT. More stories from our partner:

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