- The Washington Times - Friday, April 9, 2010

MINNEAPOLIS (AP) | Wall Street sure would like to see United Airlines and US Airways combined into one airline. Travelers? Maybe, maybe not.

The general thinking among analysts is that the U.S. has too many big carriers offering too many seats. That drives down ticket prices and makes it harder for airlines to turn a profit. US Airways and United lost a combined $856 million last year. Airline investors like consolidation because they expect it would lead to fewer seats and thus higher fares.

That’s where travelers start to get antsy.

“Mergers tend to be a net negative for consumers,” said Tim Winship, editor of FrequentFlier.com.

A combined United-US Airways would be the nation’s second-biggest carrier, behind only Delta Air Lines Inc. Combining them “would inevitably result in a significant loss of competition, the predictable result of which would be an increase in airfares in certain markets,” Mr. Winship said.

The two airlines are both major carriers in Washington, although that market also has extensive service from discount carriers.

UBS analyst Kevin Crissey wrote that he thinks a major combination such as United-US Airways would reduce capacity as much as 3 percent, mostly in the U.S. With fewer seats and competition, fares should rise, he wrote.

The airline industry is a “financial mess,” he wrote, with no major U.S. airline earning a profit that justifies the size of its investments.

“Consolidation, though not easy, riskless, or free, is a logical way to attempt to rectify this long-standing problem,” he wrote.

U.S. carriers all reduced capacity last year, and fares fell anyway because of the recession and especially a dropoff in business-travel demand.

Shares of both carriers were up in afternoon trading, with Tempe, Ariz.-based US Airways Group Inc. up 73 cents, or 10.7 percent, to close at $7.55. Chicago-based United’s parent, UAL Corp., rose $1.28, or 6.8 percent, to end at $20.23 after hitting an annual high of $20.81 earlier in the session.

Both carriers have tried for combinations in the past. United Chairman and CEO Glenn Tilton and US Airways Chairman and CEO Doug Parker were both involved when their companies talked about a tie-up in 2008. They walked away then, citing high fuel prices, but didn’t rule out a future deal. That same year, Continental Airlines Inc. rejected United’s attempt at a combination.

Neither airline has confirmed the talks. On Thursday, United President John Tague wrote to employees about what he called the “speculation regarding a possible merger between US Airways and United.”

“As is our practice, we will not add to any speculation by commenting on rumors,” he wrote.

It’s far from certain that a deal will take place. Antitrust regulators would have to clear it, and pilots from different unions would have to be integrated. It’s also unclear which name would survive, where the combined company would be based or who would run it.

Still, “the merits of a potential [United-US Airways] marriage are considerable, in our view,” J.P. Morgan analyst Jamie Baker wrote.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide