- The Washington Times - Tuesday, December 12, 2006

US Airways says its proposed purchase of rival Delta Air Lines would create a leaner, more efficient airline that would benefit customers, but analysts are debating whether a combined carrier would be a blessing or a bane for the flying public.

US Airways Group Inc. proposed an $8 billion takeover of bankrupt Delta last month. Delta has said it has no interest in the offer, but the airline’s creditors can largely determine its fate.

Because US Airways and Delta serve many of the same airports, a merger would reduce duplicate flights. Fewer flying options could lead to higher fares, said Colorado airline consultant Mike Boyd.

“Any time you take one competitor out of the mix, it’s not good for the consumer,” he said. “For the consumer, there is virtually no benefit” with the proposed deal.

A merger wouldn’t increase fares significantly throughout the industry because competition is still strong, said David Stempler, president of Air Travelers Association, a passenger advocacy group.

“For fares to go up, there has to be consensus among all the [major] carriers,” he said.

A combined airline would control more market share than US Airways and Delta do individually and may be less inclined to offer “supersaver” fares, said Darryl Jenkins, a Virginia airline consultant. Still, he doubts the new airline would raise ticket prices.

US Airways probably would transfer some service from its Charlotte, N.C., hub to busier and bigger Atlanta, where Delta has a hub, analysts say.

US Airways’ Philadelphia hub could be downsized in favor of Delta’s hub at nearby John F. Kennedy International Airport.

“There are so many variables at play here that some markets will benefit, some will not, and some will not change,” Mr. Stempler said. “If you’re in Charlotte, it’s not good in this situation, but if you’re in Atlanta, it might be better because you’re going to get maybe more service.”

Hardest hit would be small cities, which tend to be less profitable for airlines, analysts say.

Mr. Stempler said other, low-cost carriers, could fill the void.

“JetBlue, Southwest, AirTran, Frontier, Spirit [airlines] — all of these carriers look for targets of opportunity and will move in and create downward pressure on fares,” he said.

Others weren’t so sure.

If a US Airways-Delta airline sheds any routes, it would be in low-profit areas that are not attractive to other carriers, Mr. Boyd said.

“These people who are saying it’ll open up opportunities for low-cost carriers don’t know what they’re talking about,” he said. “A US Airways combined entity with Delta is not going to drop any lucrative routes, or any routes that are worth anybody going into.”

Any buyout would require approval from the Justice Department, which could require the new airline to keep at least some small-market routes.

“We have no idea how [the Justice Department] will read into everything and what they’re going to require and not require,” Mr. Jenkins said. “But obviously [US Airways Chairman and Chief Executive Officer Doug] Parker and his team have done their homework and have a pretty good idea of where the problems are, and you can bet they have a plan.”

Rep. James L. Oberstar, the Minnesota Democrat who is expected to become chairman of the House Transportation and Infrastructure Committee next month, has expressed concern that a merger could erode competition, weaken service and increase fares.

Six years ago, Mr. Oberstar opposed United Airlines’ attempt to buy US Airways, saying it would hurt competition. United later backed out of the deal.

The Justice Department likely would heed any opposition from Congress, airline analysts and law specialists say.

Some analysts have predicted a surge of mergers and acquisitions in the industry if such a deal is approved. But others disagree, saying that a merger of US Airways and Delta would pose little competitive threat to the rest of the industry.

“The argument that this deal would create such a powerful airline that other airlines would have to merge to project themselves, that’s just nonsense,” Mr. Boyd said.

Northwest Airlines is considering hiring investment-banking firm Evercore Partners Inc. to help it explore “broad strategic alternatives in the airline industry,” including a merger or acquisition.

In court papers filed Thursday, the airline said the US Airways bid “fueled active speculation that Northwest may also become the target of a hostile takeover bid.”

Both Northwest and Delta expect to emerge from bankruptcy reorganization next year.

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