As United Airlines continues its pursuit of a merger, US Airways has emerged as its most likely partner. But the Tempe, Ariz.-based carrier may not fulfill United’s international aspirations, industry observers say.
Airlines are increasingly focused on international routes for profitability and to improve their competitive standing against other leading airlines in the world.
Houston-based Continental Airlines has long been seen as the primary merger target for Chicago-based United, but Continental last month announced that it “chooses not to merge.”
United, the largest carrier at Denver International Airport, remains interested in merging with another airline and reportedly is in talks with US Airways.
Aside from US Airways, “there aren’t many other possibilities for United at this point once Continental opted out,” said George Hamlin, an airline consultant in northern Virginia.
American too large
Among the six network airlines in the United States, American Airlines is seen as too large of a partner for United because of antitrust concerns, and Delta Air Lines plans to merge with Northwest Airlines. That’s why without Continental in the mix, many believe US Airways is the most likely partner for United.
But US Airways “brings the least in terms of international footprint,” Hamlin said.
Mike Boyd, an Evergreen-based aviation consultant, said “there aren’t a whole lot of dance partners, but that doesn’t mean you’re going to have a partnership. Everybody has the ability to say yes or no.”
United attempted to merge with US Airways in a deal that was called off in mid-2001 after the Justice Department cited antitrust concerns.
“Isn’t this deja vu all over again?” Hamlin said. “It didn’t look good then. It doesn’t look any better now.”
But both United and US Airways “are clearly motivated to do something,” said Robert Mann, an airline consultant in Port Washington, N.Y. US Airways, however, “doesn’t bring much to the party.”
A merger between United and US Airways might not affect Denver materially. “Denver is a pretty unique piece of geography and a pretty powerful hub,” Hamlin said.
United’s standing stressed
The Delta-Northwest merger could create the world’s largest airline, one that will offer more choices for travel around the world and will be better able to compete with other airlines around the world.
United chief executive Glenn Tilton also has emphasized a need to improve United’s standing internationally.
“Consolidation will help get the industry closer to being able to compete against foreign carriers,” Tilton said in a message to employees in April. “As the industry evolves, we will take the actions we need to strengthen our global competitiveness, and we will participate in consolidation when and if it is the right choice and provides the right benefits for employees, customers and shareholders.”
International routes have less low-fare competition than domestic routes and can allow airlines to bring in higher fares from business travelers and international leisure travelers.
For United, a deal with Continental would have enhanced its international route network where it is most lacking — in Latin America and in Europe.
But US Airways “doesn’t really have the extent of service on the Atlantic or Latin America,” Mann said.
Compared with a merged Delta-Northwest, United would have “an inferior network,” Mann said.
When large multinational companies seek to buy most of their travel from a single airline, having a large international route network allows an airline to get more bookings from lucrative business travelers.
“I don’t have any real great vision as to how this is going to fix South America for them,” said Bob McAdoo, an airline analyst with Avondale Partners in Kansas City, Mo. “I think it’s just something they have to build on.”
But a combination with US Airways could give United more domestic traffic to feed international routes, McAdoo said.
Among the considerations for United might be more cooperation with other carriers internationally. American Airlines and British Airways are reportedly in talks to expand their Oneworld alliance to add Continental and secure antitrust immunity to set prices and schedules. Tilton has advocated for loosened restrictions on foreign investment in U.S. airlines.
US Airways is “an unbelievable gathering system” of domestic passengers in the Eastern United States to make United’s European operations “far stronger than they would ever be otherwise,” McAdoo said. “It takes the existing European network of United’s and makes it so much stronger and gives them the feed that allows them to go into cities that they may not have otherwise.”
US Airways also would give United a stronger presence in New York, where it does not have a hub.
Kelly Yamanouchi: 303-954-1488 or kyamanouchi@denverpost.com
