- The Washington Times - Thursday, May 25, 2000

United Airlines' purchase of US Airways Group Inc. will help passengers in the short run by giving them more flying options and forcing competitors to beef up, airline experts said yesterday. But the deal may not help fliers in the long term.
The $11.6 billion combination of the nation's largest air carrier and Arlington, Va.-based US Airways, No. 6, would create the first truly nationwide airline carrying nearly 400,000 travelers on 4,400 flights daily. With US Airways under its wing, United would account for about one of every three seats on all domestic flights.
The industry could see a new round of consolidation as competitors buy up smaller airlines to compete with the giant United, analysts said.
"It will trigger probably one more merger," said airline analyst Julius Maldutis of CIBC World Markets. "It will be a very powerful company. American, Continental, Delta and Northwest have to make strategic decisions."
The deal must first clear two major hurdles. The two companies will have to demonstrate to regulators that the merger will not create a monopoly. And companies must convince their own employees to integrate the two work forces.
To allay antitrust concerns, the companies said they would sell aircraft and routes out of Ronald Reagan Washington National Airport to a new airline, to be called DC Air.
That airline would be created by Robert L. Johnson, founder of Black Entertainment Television and a member of the US Airways board.
The acquisition did not satisfy all consumer advocates.
"Since when is eliminating an airline a good deal?" asked Mike Boyd, an analyst with Colorado-based Aviation Systems Research. "The whole point is to get the stock price up and eliminate competition."
United stock fell $7.19 a share, or 13.5 percent, to $53.19 yesterday on the New York Stock Exchange. US Airways stock rose more than $22, or 45 percent, to close at $49 a share on the NYSE.
But David Stempler, president of the Air Travelers Association, which represents airline passengers, said the deal could help consumers by clearing up problems that have plagued US Airways in the past.
"US Airways has had lots of operational problems over the last year," including a threatened strike, financial problems and the transition to a new computer system, he said. "It's been a very bumpy ride."
"This acquisition solves all of these problems all at once," he added.
A merger would prevent disruptions like these and give passengers more seamless connections to domestic and international destinations, Mr. Stempler said.
Joel Denney, an analyst with U.S. Bancorp Piper Jaffray, agreed, saying that passengers would have more opportunities to stay on one airline, which would make connecting flights more convenient.
Another potential benefit to consumers is that United would cap its fares for two years under the deal. The airline would only raise fares to keep pace with inflation or the consumer price index.
"If we are wrong, we are committed to it and we will stick to it," US Airways Chairman Stephen M. Wolf said yesterday at a press conference in New York where the deal was officially announced. Mr. Wolf will leave the company after the merger is completed, he said.
US Airways frequent-flyer miles would be consolidated with United's own program, according to United officials. United also announced it would start 64 new domestic flights and 29 new international flights daily.
Several details remained to be worked out, such as exactly what routes and assets would be sold to DC Air, when United would add the new flights and how United pilots and employees will react to the proposed merger.
Labor issues could be thorny, and kept the two airlines from merging once before in 1995, said Mr. Denney, the analyst. Integrating pay scales, seniority and "scope clauses," which dictate where regional subsidiaries can operate, complicate every airline merger, he said.
"There hasn't been an easy integration in the industry yet," he said.
The two airlines' route networks complement each other well, company officials said. Chicago-based United operates mostly in the West but has east-west routes stretching across the country. US Airways operates in the East using a north-south network.
"There's very little overlap," said James E. Goodwin, United's chairman and chief executive officer, at the New York news conference.
But even as some analysts hailed the prospect of such a large airline, there was a rising chorus of criticism about new airline combinations.
Congressional and Justice Department officials said regulators will scrutinize the proposed acquisition carefully. The Justice Department already is pursuing a lawsuit against Northwest Airlines for seeking a controlling stake in Houston-based Continental. St. Paul, Minn.-based Northwest already owns 50 percent of Continental.
Kevin P. Mitchell, chairman of the Business Travel Coalition, an organization that represents corporate travel interests, also voiced concern about the massive proposed combination.
"The steady slide of the airline industry toward excessive levels of concentration makes new airline entry more critical now than ever before," he said in a statement.
Many air travelers at National Airport expressed concern that United's acquisition of US Airways would lead to higher air fares and service. Rising consumer complaints last year about poor service prompted some in Congress to consider new laws to force improvements. The major airlines answered that threat with a voluntary pledge to improve.
But some travelers remain skeptical.
"Large mergers are not really in the best interest of the consumers," said Kristine Medea, who was waiting at Reagan Airport for a US Airways flight to Atlanta.
She noted that US Airways ticket prices seem to be going up lately but service has not improved.
Other travelers agreed.
"You have so many companies growing with all of these mergers; it is not good for competition," said Latjor Ndow, who was waiting for his mother to get on a US Airways flight to Indiana. "The customer is always the one who suffers. Prices will go [up] and service will get worse."
Blithe Robinson, on her way to Idaho on a business trip, was worried that ticket prices would go up. "I'm concerned [United] won't have as many deals."
Standard & Poor's analyst Philip Baggaley said the merger would probably give business travelers more choices, but higher fares after two years. Leisure travel would be less affected because it is always more sensitive to price competition, he said.

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