American Airlines CEO reveals why he engineered 2 of the biggest airline mergers in the last 20 years

  • American Airlines CEODoug Parker oversees the largest airline in the world.
  • Parker, though, started off as CEO of America West Airlines, a medium-sized network carrier based in Tempe, Arizona with a single hub at Phoenix Sky Harbour International Airport. In 2005, he oversaw the airline’s merger with US Airways.
  • The merger worked so well that US Airways would soon be strong enough to merge again. It tried and failed to merge with both Delta Air Lines and United Airlines.
  • In 2013, US Airways and American Airlines came together in a merger valued at $US11 billion.
  • “It was all about what moves are we making to make sure we get these people into safe harbour,” Parker told Business Insider. “That’s why we merged with US Airways because we were worried that America West standalone wasn’t in a safe harbour. That’s why we merged with American Airlines, we were worried US Airways as a stand-alone was no longer in a safe harbour.”
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A 40-year-old Doug Parker found himself dejected on a flight home to Phoenix, Arizona from Washington D.C.

He had just been turned down for the government loan guarantee needed to keep his airline from folding.

Parker had become the CEO of America West Airlines only three months earlier on September 1, 2001. At the time, he was just 39-years old, one of the youngest CEOs in the industry. It was the beginning of a career ascendancy that would culminate with him running the largest airline in the world.

For Parker, the good times at the beginning of his America West tenure would last only 10 days as the tragic events of 9/11 plunged the nation and its airline industry into a period of darkness.

“I sat in my seat on the way home from D.C., kind of this woe is me, what am I going to do here?” Parker told Business Insider. “I’m this brand new CEO, I’m going to have a resume that says I got to be CEO and then three months later the airline liquidated. What am I going to do?”

A conversation with one of his flight attendants during the trip home put things into perspective.

“I went to the back and talked to a flight attendant because I always do, even though I didn’t really want to because I wasn’t sure what I was going to say,” he said. “She asked of course about how this is going and she just looked at me and said, ‘You can’t let that happen. I’m a single mum and I’ve been doing this job for 13 years,’ is my recollection. ‘This is what I’m trained to do, this is what I do and I’m really good at it,’ which she was. ‘And you can’t let that happen.'”

The short conversation stuck with Parker and effectively changed the way he views what it means to be a company’s chief executive.

“From that point forward I stopped worrying about my own career and realised that those people that are in our care, are dependent upon us to go fight for them,” Parker said. “It’s not their fault that their company isn’t as strong as another one, they’re out there doing amazing things. We needed to get our company strong enough.”

It’s this mindset that guides Parker’s decision making to this day.

Read More:American Airlines CEO reveals why a small Italian airline is the focus of the nastiest feud in the airline industryAs for the loan guarantee, Parker reapplied days later and was eventually granted the lifeline America West needed.

However, Parker’s airline was far from safe waters. The days following 9/11 were bleak for the entire airline industry. Airlines slashed costs while their employees took major pay cuts. When that wasn’t enough, there were layoffs and bankruptcies.

America West Airlines was a medium-sized network carrier based in Tempe, Arizona with a single hub at Phoenix Sky Harbour International Airport. America West couldn’t challenge the likes of American, United, and Delta in terms of revenue, but survived by having lower operating costs.

According to Parker, the airline’s only competitive advantage at the time was that it paid its employees less. However, as rival airlines emerged from bankruptcy, they did so with pared-down labour costs comparable to that of America West.

“All of a sudden we had a model that was not long-term viable,” Parker said. “So as they got their cost near ours and we have a revenue disadvantage, we knew we had to do something in order to keep that company viable.”

Read More:American Airlines CEO reveals the most important lesson he learned from the legendary founder of Southwest AirlinesParker added, “So we at least had the foresight to recognise this wasn’t longterm sustainable, we needed to figure out a way to expand our network to get more scale.”

For America West, the answer to its problems would be to merge with US Airways.

By 2004, Virginia-based US Airways had filed for bankruptcy twice in two years. Parker pushed for a merger with US Airways even as many in the industry felt it was time to let the airline liquidate its assets and disappear from the market. However, Parker noted a US Airways liquidation would have simply resulted in American, United, and Delta picking up most of the defunct carrier’s assets.

“(Liquidation) just made them even stronger and made us even weaker,” he told us. “We thought instead, let’s merge with them. So that was really just out of strategic necessity, this is a big opportunity for us to get some scale and we did.”

The merger worked. In 2005, a new US Airways with America West in the fold emerged from bankruptcy.

Over the years that followed, US Airways fought through some operational woes to find success. Its hub in Philadelphia would prove to be more successful than United’s much bigger hub in Newark, New Jersey. Something former US Airways President and Current United Airlines President Scott Kirby would begrudgingly admit.

At the same time, US Airways’ hub in Charlotte would go on to become one of the most profitable operations in the airline industry.

In fact, the merger worked so well that US Airways would soon be strong enough to merge again. It tried and failed to merge with both Delta Air Lines and United Airlines.

Delta would merge with Northwest in 2008 while United went on to merge with Continental in 2010.

US Airways would finally find the right partner in American Airlines, the company where Parker’s airline career began in 1986 under the tutelage of former CEO Bob Crandall.

In 2013, US Airways and American Airlines came together in a merger valued at $US11 billion. Parker’s reasoning for this merger was the same as the first one.

“It was all about what moves are we making to make sure we get these people into safe harbour,” he said. “That’s why we merged with US Airways because we were worried that America West standalone wasn’t in a safe harbour. That’s why we merged with American Airlines, we were worried US Airways as a stand-alone was no longer in a safe harbour.”

In 2018, American Airlines with 57-year-old Doug Parker at the helm reported a $US2.8 billion profit and on $US44 billion in revenue.

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