Air Merger Could Help Fliers
A merger of US Airways and America West Airlines would benefit travelers with more low-fare choices, analysts said Wednesday, but there are widespread doubts that such a deal will ever happen.
The two carriers are discussing plans to form a national discount airline that could better compete against low-fare rivals such as Southwest Airlines Co. and JetBlue Airways.
David Bronner, chairman of US Airways parent US Airways Group Inc., confirmed published reports of the negotiations in an interview Tuesday with Associated Press. A USAir spokesman, however, declined Wednesday to confirm Bronner’s statement. America West had no comment.
“We are in and out of talks with other carriers on a fairly regular basis, and we find it best not to talk about them until there’s something concrete,” W. Douglas Parker, chief executive of America West parent America West Holdings Corp., said in a conference call Wednesday to announce the airline’s first-quarter results.
Many observers believe the troubled airline industry is ripe for consolidation. But airline mergers have a checkered past, and the US Airways-America West talks got a skeptical reception on Wall Street.
“An outright merger is unlikely,” analyst Jamie Baker of J.P. Morgan Securities Inc. said in a report Wednesday.
America West’s stock tumbled 6.4% after analyst Michael Linenberg of Merrill Lynch & Co. downgraded the shares, saying their value would be limited by uncertainty stemming from the talks. The stock fell 31 cents to $4.50 on the New York Stock Exchange.
The drop also came after the airline posted a first-quarter profit of $33.6 million, or 62 cents a share, thanks to a one-time gain. Excluding the gain, America West lost $10.8 million, beating Wall Street forecasts. A year earlier, the company had a $1.6-million loss. Revenue rose 11% to $722.8 million.
US Airways, based in Arlington, Va., is operating under Chapter 11 bankruptcy protection, and a merger with another carrier might be its only means of long-term survival, some observers said.
Forming a large, low-fare airline would seem a promising solution as discount airlines take market share from the so-called legacy carriers: AMR Corp.’s American Airlines, UAL Corp.’s United Airlines, Delta Air Lines, Northwest Airlines Corp. and Continental Airlines Inc.
“I see nothing but good news for the consumer” if US Airways and America West join forces to cut more fares, said analyst Terry Trippler, who runs a travel website bearing his name.
America West, based in Tempe, Ariz., is the nation’s eighth-largest airline and flies mostly east-west routes from its hubs in Phoenix and Las Vegas. The routes of seventh-ranked US Airways are concentrated in the East, and its hubs include Charlotte, N.C.; Pittsburgh; Philadelphia; and Washington.
If they merge, “I don’t think it would do a tremendous amount of damage to Southwest,” a relentless cost cutter known for staying profitable in good times and bad, Trippler said.
Battling Southwest would be especially tough in California, where Southwest is the largest carrier, with more than 620 daily departures.
US Airways serves Los Angeles International Airport with nine daily flights, and America West has 22 daily flights from LAX, giving them a combined 4.9% of the airport’s traffic. Southwest has a 12.1% share.
America West also serves Burbank, Orange County and Ontario but has a much smaller share of those markets than Southwest.
Southwest, in turn, would be expected “to apply maximum pressure” on the new airline to protect its market share, analyst Robert Ashcroft of UBS said in a report Wednesday.
Although the notion of taking business from Southwest “might have a nice ring to it,” the new airline would not have Southwest’s financial strength to endure widespread fare cuts, Baker of J.P. Morgan wrote.
Labor is one reason airline mergers are tough, because it’s hard melding two sets of unionized workers that have different seniority and other work-rule rights in their contracts.
The International Assn. of Machinists, which represents US Airways’ mechanics and other workers, would take a hard look at any merger proposal, spokesman Joe Tiberi said.
