AJOT Digital Edition
Issue #583 | Forest Products

Cover of issue-583.png

Forest Products

View Issue #583 Now!

2014 Media Kit
  • Share this article:

US Air/American link could bolster global routes

By: | at 08:00 PM | Channel(s): Air Cargo  

The pending marriage of United Airlines and Continental Airlines leaves US Airways Group and American Airlines logical partners with their survival possibly at stake.

While the pairing would not be perfect, an alignment of their operations would give premium business travelers foreign and domestic options similar to those of the new United and Delta Air Lines , which merged with Northwest in 2008.

“There’s not too many options available to American and US Air because the dance partners have already matched up,” said Vaughn Cordle, chief analyst at AirlineForecasts, an airline investment research and strategy company.

“In the end, we think US Air and American make the best match-up,” Cordle said, adding that they stand little chance of long-term success separately.

A marketing alliance could be sufficient or the prelude to a merger, industry experts say.

Soon after United parent UAL Corp and Continental announced their plans in May, rumors began that AMR Corp’s American and US Airways were sizing each other up for an alliance to coordinate their overseas flying and generate new revenue.

Both United and Continental and Delta and Northwest took similar paths before moving to merge.

US Airways Chief Executive Doug Parker has aggressively - but unsuccessfully - sought consolidation since 2005 when the current airline was lifted out of bankruptcy through a merger with his America West Airlines. American Airlines bought Trans World Airlines in 2001.

Possible Pairing

American and US Airways insist they can compete as stand-alone carriers, which supports the idea that they would first pursue a marketing alliance.

If that is their route, US Airways likely would move to the Oneworld global alliance with American, British Airways and Japan Airlines . Delta leads SkyTeam, while the new United would top the Star Alliance as the world’s biggest airline. US Airways is currently part of Star.

In that scenario, US Airways and American would seek an exemption from U.S. antitrust law to share scheduling and pricing details. This would highlight US Airways’ transatlantic service from its Philadelphia hub—a quietly successful complement to the allied New York service of American and British Airways, which dominate traffic to London.

Bob McAdoo, senior research analyst for Avondale Partners LLC and a former airline executive, said in a note to clients that the Philadelphia hub for US Airways is more productive in collecting connecting traffic to Europe from northern and eastern U.S. areas than the Newark hub is for Continental.

He also said investors tend to view the American/British Airways transatlantic partnership as being larger than it is because of its potency between New York and London.

In fact, the Oneworld alliance has fewer U.S. connecting points via American at New York’s Kennedy airport than does SkyTeam with Delta at JFK and Star with Continental/United/US Airways at Newark, Washington Dulles and Philadelphia.

US Airways would be a “nice addition to someone’s existing larger network,” McAdoo said.

Not sp “Ugly”
In Washington recently, US Airways CEO Parker would not say whether he had discussed merger or alliance possibilities with his AMR counterpart Gerard Arpey, who has stated that AMR does not have to merge to compete.

A US Airways/American combination would give the joint entity about a 22 percent market share - based on 2009 figures reported to the U.S. government. That compares with 18 percent for a merged United/Continental and 17 percent for Delta.

A month ago, Parker bristled at an inference by Continental CEO Jeff Smisek that US Airways was an “ugly girl” of sorts and thus a less desirable merger partner for United. Smisek later apologized.

But to Wall Street, since the $3.2 billion all-stock Continental/United merger announcement, US Airways is hot. The carrier has revamped its network to stress hub flying and has a bullish second-quarter outlook.

JP Morgan’s Jamie Baker, who does not believe US Airways is “frozen out” of