United Airlines — the largest carrier in Denver — and US Airways are reportedly in “deep” merger discussions that could lead to creation of the nation’s second-largest airline.
Representatives of both airlines declined to comment on the report first published Wednesday on The New York Times’ DealBook blog.
For years, United chief executive Glenn Tilton has spoken publicly about the need for consolidation in the airline industry.
The Times, citing unnamed people who have been briefed on the situation, said the transaction was not expected to be announced for at least several weeks and the deal could still collapse.
If the merger were to go through, it would make the combined airline second in size only to the recently combined Delta-Northwest.
Shares of both United and US Airways gained in after-hours trading.
Cost savings and cutting capacity to increase fares are reportedly the impetus for the discussions.
But aviation consultant Mike Boyd questioned how serious the two airlines’ intentions are.
“Neither one needs a partner,” Boyd said. The prevalent argument is there is a need for the industry to reduce capacity, “but everything is full right now.”
Boyd said the merger would provide “no upside and no downside” for Denver passengers.
“I’m just not sold that there is a merger talk here,” said William Swelbar, research engineer for the International Center for Air Transportation at the Massachusetts Institute of Technology.
Consolidation is “a good and healthy thing because the industry needs to stabilize itself,” Swelbar said. Fares are down 55 percent in the past 30 years, Swelbar said, and a merger theoretically would cause fares to rise, providing airlines with more revenue.
Some analysts, however, believe the merger would cause certain airfares to drop.
Ties with Continental
Boyd and Swelbar noted United has been in an on-again, off-again relationship with Continental Airlines and that merger might prove more logical.
Discussions with US Airways “could be a stalking horse to get Continental out of the barn,” Boyd said.
Swelbar theorized US Airways chief executive Doug Parker wants a deal with United to avoid pilot labor issues.
“I’m struggling with how United is the driver in the deal, if this is right,” Swelbar said. “Parker is looking at how he can make himself relevant.”
United and United Express make up nearly half of DIA’s market. US Airways owns a much smaller piece of DIA’s market pie at 2.2 percent.
The two airlines have flirted before.
They proposed to merge in May 2000, but the $12.3 billion deal ran aground about a year later because of opposition from United’s powerful pilots union and the U.S. Department of Justice. Ultimately, United was pushed toward bankruptcy.
The pilots feared losing seniority to US Airways pilots, and they used their objections and a costly work slowdown to force United to agree to unprecedented pay raises.
The Justice Department never warmed to the airlines’ efforts to address antitrust concerns centered on their operations in the Washington area.
It’s hard to compare the current rumored talks and the previous effort, Swelbar said.
“In 2000, any merger was going to contain a potential amount of overlap of routes,” Swelbar said. “But both airlines are considerably smaller since they have cut so much capacity, so the overlap is much less.”
United has explored several mergers since emerging from bankruptcy in 2006.
When talks with Continental Airlines fell through in early 2008, the airline re-entered discussions with US Airways.
Deal fell through
That deal fell apart as rising jet-fuel costs caused big losses at airlines and caused credit to dry up. United then entered into a closer marketing agreement with Continental.
Labor issues halted a United-US Airways merger before and could again. All of United’s six unions are in contract negotiations.
“United needs to get its own house in order first,” said Sarah Nelson, spokeswoman for the Association of Flight Attendants that represents United’s flight attendants.
If a merger were to occur, it would mark the second major airline at DIA to undergo an ownership change. The second-largest carrier, Frontier Airlines, was purchased in October by Republic Airways.
Denver Post staff writer Andy Vuong contributed to this report.
Ann Schrader: 303-954-1967 or aschrader@denverpost.com
