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November 1, 2014

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Reno Air’s fate unclear with American merger

Reno Air could become a feeder carrier for American Airlines. Or, it could become a distant memory like many other regional air carriers that have come and gone.

Reno Air officials say decisions about the operation of the airline aren't expected to be finalized until the first quarter of 1999. Until then, said Nancy Raymond, external communications coordinator for Reno Air, it will be business as usual.

But there could be other consequences for the 535 Reno Air employees working in Las Vegas.

Unanswered are questions about whether six-year-old Reno Air would continue to operate under that name and whether its strategy of flying as a discount carrier concentrating on business customers would continue. No specifics were offered on whether Reno Air's work force would be absorbed by American.

However, American officials said they expected all of Reno Air's 2,000 employees systemwide would be hired.

Of concern to the local work force is what ultimately will happen to the Las Vegas reservations center, which employs 326 people.

The rest of Reno Air's labor force in Las Vegas works in maintenance and customer service positions. Some Reno Air flight attendants and pilots are based in Las Vegas, but the company's baggage handling and ramp work is contracted to other airlines.

Pilots at the airlines will have a say in the deal. AMR says it doesn't expect many problems integrating the 310 pilots at Reno Air into American's system because Reno Air was only founded in 1992 and most of the pilots would be junior to those at American.

Still, the Allied Pilots Association, which represents American's pilots, and the Air Line Pilots Association, which represents Reno Air's pilots, will need to give their consent.

"It should be known we would always prefer to grow from within. There are a lot of details that need to be worked out, but we will be working with management to accomplish that," said APA spokesman Gregg Overman.

Reno Air no longer has its leisure travel tour packaging unit, which was sold to America West Airlines earlier this year.

The final decisions on the merged airlines' operations will occur at around the same time a Las Vegas-based startup airline will begin operations.

Dik Shimizu, director of corporate communications for National Airlines, said it's too early to tell if many concerned Reno Air employees are applying for jobs currently being offered by the new airline.

"We have talked to a few current Reno Air employees at some of the job fairs we've had in Las Vegas recently," Shimizu said. "But the (merger) announcement only occurred (Thursday) so we haven't heard much directly related to that."

Although named after the Northern Nevada city, Reno Air's focus has been on Las Vegas and San Jose, Calif., in the past two years. The company built a mini-hub at Las Vegas's McCarran International Airport and opened a reservations center here in 1997, remaining true to its goal of being a regional discount carrier.

When the company continued to lose money toward the end of last year, Chief Executive Officer Robert Reding was ousted and a group led by Joseph O'Gorman, a former United Airlines executive, was entrusted with returning the airline to profitability. Reno Air's 1997 loss was $11.6 million -- $1.18 per share.

Las Vegas suffered in some of the resulting cutbacks. About a dozen daily flights were eliminated when Reno Air dropped service to Albuquerque, N.M., San Diego and three other cities. But some flights were recovered when the company beefed up its frequency to Los Angeles and Orange County, Calif.

Reno Air was on a growth pattern in Las Vegas even as its passenger counts lagged in some markets.

Today, Reno Air is the No. 5 carrier at McCarran by passenger volume, having carried 1.4 million passengers to Las Vegas to date this year. It has 25 daily nonstop flights to Reno, Los Angeles, Orange County, Tucson, Ariz., and Colorado Springs, Colo.

The acquiring company, American Airlines, is actually weaker in Las Vegas than Reno Air. By passenger volume, it is No. 7 at McCarran, with 921,879 customers to date this year. Its 12 daily flights transport passengers nonstop to Los Angeles, Dallas and Chicago -- hubs from which passengers move to other domestic and international destinations. The Las Vegas-Los Angeles route is the only place where service is duplicated by the two carriers.

American already has said it doesn't plan a strategy like Shuttle by United, the airline within an airline offered in Las Vegas by Chicago-based United.

If the combined American-Reno Air carrier could maintain those Las Vegas numbers, it could climb ahead of United into the No. 3 position at McCarran, still a good distance behind market leaders Southwest and America West.

As far as the reservations center is concerned, an American spokesman said it would remain open. The company already operates reservations centers in Cincinnati; Hartford, Conn.; Cary, N.C.; Fort Worth and San Antonio, Texas and Tucson, Ariz.

American's acquisition of Reno Air could fill what has become a critical gap in its network -- the West Coast. American retreated when Southwest Airlines became a dominant player in California. American shut down its San Jose hub allowing Reno Air to get a foothold in that market at the time.

Some analysts are concerned that American will do the same thing it did when it acquired Air California in the late 1980s. The airline acquired the company, took some of its big resources, including its planes, then reallocated them to other locations.

Reno Air's fleet is exclusively MD-80 and MD-90 twin-engine jets. It owns two and leases 25 of the 148-seat jets. American also uses those types of planes for all its McCarran runs.

"They're protecting the overall franchise," said Steve Lewins, an airline analyst with New York-based Gruntal & Co. "With United expanding again in California, they're wanting to be more flexible."

Lewins said when questioned by analysts, American officials denied they were planning a Shuttle by United clone or that they would cannibalize Reno Air as they had Air Cal.

"It's more evolutionary than revolutionary," said Lewins, who said he thought the $124 million purchase price was low.

American, which is the second-largest U.S. carrier, offered $7.75 a share, a 6.9 percent premium to Reno's closing price on Wednesday. American will also tender for Reno's outstanding preferred stock at $27.50 a share.

Reno Air's chairman, president and chief executive officer said the merger would enhance American's global presence.

"The acquisition of Reno Air by American Airlines is the right decision for our shareholders, our employees and the communities we serve," O'Gorman said. "The transaction will provide stability to our employees and offer our customers access to the world's largest network of airlines."

Reno Air already had a strategic alignment with American, offering interchangeable frequent-flier mileage on its flights. American also has a marketing agreement with the MGM Grand that allows slot club players to accumulate bonus points that can be used in airline ticket transactions.

Rep. Jim Gibbons, R-Nev., who represents Northern Nevada and is a former commercial airline pilot, was contacted by O'Gorman Thursday.

"Reno Air's business agreement with American Airlines will hopefully strengthen their position in the increasingly competitive airline industry," Gibbons said. "American Airlines has the national and international marketing resources to help promote the Reno, Lake Tahoe and Las Vegas destinations to their customers."

The transaction will be looked at by U.S. regulators at both the Department of Transportation and the Justice Department. Transportation officials will review the impact the purchase will have on the airlines' economic fitness, agency spokesman Bill Mosley said. The DOT requires 30 days' notice of the purchase before consummation of the purchase, Mosley said, but does not have to approve the transaction before it can proceed.

SUN WIRE SERVICES contributed to this report.

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