How United-US Airways merger would affect consumers, Phila.
Would a US Airways and United Airlines merger be good for Philadelphia and for consumers? News that the carriers are talking, to create the nation's second-largest airline after Delta Air Lines Inc., sent their shares higher Thursday.
Would a US Airways and United Airlines merger be good for Philadelphia and for consumers?
News that the carriers are talking, to create the nation's second-largest airline after Delta Air Lines Inc., sent their shares higher Thursday.
But are mergers good for travelers, and would shrinking competition lead to higher airfares?
In some markets and routes, probably yes, industry experts say.
But if US Airways and United tie the knot, after failing to do so in 2000 and 2008, chances are excellent that Philadelphia would emerge as key to a new, bigger airline, experts said, because of strong local origin-and-destination traffic and the region's large population.
As for which East Coast airports might lose out - Philadelphia and Charlotte, N.C., as US Airways hubs, or the United hub at Dulles airport in Washington - several industry observers said Dulles would likely shrink.
"I think Dulles would become more like Pittsburgh," which lost hub status after the America West-US Airways merger in 2005, said airline analyst Bob McAdoo of Avondale Partners L.L.C.
"There's not nearly as much origin-and-destination traffic out of Dulles, and Dulles is in the middle of nowhere," McAdoo said. "You'd end up with Philly getting, not necessarily more flights, maybe bigger airplanes, more business, and more customers going through."
Industry consultant Richard Golaszewski said, "Philadelphia will always have good air service because it's a big city. My sense is that Dulles has not been the strongest hub. It does well on international traffic. Is it a good domestic hub? I don't know. Philly is a very big local market."
Whether airline mergers are good for consumers is a matter of debate.
"Has the Delta-Northwest merger been good for consumers or bad? There's no way to generalize," McAdoo said. "Ticket prices might go up in some markets, but there's so much competition between airlines. There are probably 10 different ways to get from one city to the next."
Mergers can be good for passengers in service frequency and schedule offerings, but the airline's "incentive is to cut costs and raise fares if they can," said Golaszewski, executive vice president of GRA Inc. in Jenkintown. "Consolidation may lead to somewhat higher fares."
As for why US Airways Group Inc. and United are talking now, the chief executive officers of both, Doug Parker and Glenn Tilton, are big fans of consolidation and have talked before. "It's not like this came out of the blue," Golaszewski said.
"Mergers are driven, for the most part, by the wishes of the CEOs, more than route structures, or aircraft, or international networks," McAdoo said. "It's a function of the individuals in the CEO chair."
Industry observers say that Continental Airlines Inc., with a large European network and hubs in Newark, N.J., and Houston, is a more enticing match for United, which in 2008 pursued merger talks with Continental, until Continental broke them off.
Some speculate the resurrected discussions between United and US Airways may be United's attempt to push Continental to the table. "We expect United to also speak with Continental (probably a better alternative)," UBS AG airline analyst Kevin Crissey said in a client note.
Analysts generally liked a United-US Airways combination. JPMorgan Chase & Co.'s Jamie Baker told investors that the merger was "the most logical and feasible" among the major carriers and that the merits "are considerable."
Barclays Capital airline analyst Gary Chase called the combination "compelling" and predicted it would "generate significant savings, $250 million to $400 million annually. There are no losers on this news."
United and US Airways have compatible fleets - large numbers of Airbus aircraft - and "a lot of room to naturally reduce capacity on the East Coast," said Avondale's McAdoo.
On international routes where United and US Airways compete, a merged carrier might "cancel the duplicate flight out of Dulles and use Philadelphia," McAdoo said. "The Philadelphia hub has a lot more gathering capacity than does Dulles. US Airways network is long established in the eastern one-third of the country. That's what US Airways is all about."
A merged airline would give United a superior feeder network for its trans-Atlantic routes and a "good presence" in the Southeastern United States, where United has virtually none, McAdoo said. US Airways would gain international routes across the Pacific to Asia.
A key sticking point to any deal could be the complexity of putting together the union contracts covering each airline's pilots.
Five years after the merger with America West, US Airways still has not reached labor agreements with its pilots over seniority.
At United, the Association of Flight Attendants said it would not support any deal that "distracts" from contract negotiations for improved pay, health care, retirement, work rules, and job security.
"United Airlines needs to get its own house in order before attempting to hoist the problems management has created onto another business deal," said United flight attendants, which this week picketed at 15 airports worldwide to protest "three-month overdue" contract improvements.
John McCorkle, president of the AFA in Philadelphia, said that, on the plus side, a merged airline would open up more potential crew bases for US Airways flight crews "everywhere from London, to Honolulu, to Hong Kong. My main concern would be any job reductions."
Capt. James Ray, spokesman for the US Airline Pilots Association, representing US Airways pilots, said he personally had "been through four mergers, and I received nothing but heartache from every one of them."
"What we witness in a merger is upper-management gets rich - bonuses, golden parachutes. Investors get rich, make a lot of money on it," Ray said. "The employees take the brunt, the ugliness of trying to work it out. There are layoffs and furloughs."
Ray said US Airways pilots would support and help make a "merger a success if there is something in it for the pilots. If they are not offering a thing to us, then, no, we won't support it."
Building US Airways
US Airways, the dominant airline at Philadelphia International Airport, is an amalgam of eight airlines that merged over seven decades. Here is how US Airways grew and changed.
1939 - All American Aviation starts airmail routes in Western Pennsylvania and the Ohio Valley.
1949 - All American Aviation becomes All American Airways and starts passenger service.
1953 - The name is changed to Allegheny Airlines to reflect the region where it is based.
1967 - The airline launches Allegheny Commuter service with a Hagerstown, Md.-to-Baltimore route.
1968 - Allegheny expands to the Midwest with acquisition of Lake Central Airlines.
1972 - Allegheny buys Mohawk Airlines of Utica, N.Y.
1979 - Name is changed to USAir as it expands to the Southwest and Florida.
1987 - USAir acquires Piedmont Airlines and Pacific Southwest Airlines.
1996 - USAir announces plans to change name to US Airways and begins expansion at Philadelphia airport as its international hub.
1998 - US Airways buys Trump Shuttle, now US Airways Shuttle.
2002 - US Airways files the first of two Chapter 11 bankruptcy petitions that it will need for survival over the next three years.
2005 - America West Holdings and US Airways Group Inc. announce plans to merge, keeping the US Airways name.
- Tom Belden