United and US Airways in Merger Talks…Again

Here we go again:

UAL Corp.’s United Airlines and US Airways Group Inc. have resumed discussions of a potential merger that would create a global behemoth, people familiar with the matter said Wednesday.

The talks are the latest in a decadelong dance between the two big airlines and have recently heated up after months of off-and-on conversation, these people said. The talks aren’t that far along and could falter again, these people said.

This news came as a surprise to me, but I still think UA has its eye on the golden goose: Continental. The continued alignment of United with Continental since CO joined Star Alliance leads me to believe that the latest round of merger speculation is somehow geared toward wooing Continental.  

I could be wrong, though. Glen Tilton has been advocating for a merger for ten years and it could be that US Airways is better than no merger at all.

Both companies’ CEOs—US Airways’ Doug Parker and UAL’s Glenn Tilton—have loudly championed the need for consolidation tamong domestic carriers to cut capacity and allow fares to rise.

Yes, but a US-UA marriage? What is it that US offers UA? My hunch is that under a consolidated United Airlines, there would be no need for all three west coast hubs in PHX, LAX, and SFO. SFO is safe and I think LAX would be kept over PHX because of UA’s history and vast flight schedule from LAX. PHX would become like LAS, just a focus city.

Same story in the East. CLT, IAD, and PHL? I don’t think so. There is so much overlap in the European schedules of United and US Air that I can’t fathom the need to continue full service from two Mid-Atlantic hubs and a southern hub only a few hundred miles away from IAD. US is already cutting back at PHL, so I envision a competition between IAD and CLT for supremacy. I’d give the edge to CLT due to its superior weather and facilities. Remember that UA’s facilities at IAD remain "temporary."  Yet, Congresscritters may not like the idea of losing non-stop international service from the DC area and may step in…

If the object of consolidation is to eliminate flights, the overlap between US and UA makes a merger more attractive than a UA-CO merger.

Union disagreement and antitrust concerns doomed the last major push by UA and US to merge and I hope that the unions will vocally oppose the latest merger talks. After all, US and America West have not been able to sort out their own issues after three years:

US Airways, itself the result of a 2005 merger of the old US Airways and America West Airlines, still hasn’t been able to combine its pilot and flight-attendant ranks because the unions won’t agree on seniority. And US Airways pilots have a stipulation in their contract that would raise their wages back to pre-bankruptcy levels if a merger occurs that would trigger a change of control—another aspect United and US Airways would have to confront…

Good.

Continental was widely regarded as a better strategic fit than US Airways, but Continental’s then CEO, Larry Kellner, decided his company would be better off remaining independent. Jeff Smisek, his successor, has said he might change his mind about mergers if Delta uses its size to outpace the rest of the industry…

Good. A combined UA-CO with hubs in EWR, IAD, ORD, DEN, IAH, SFO, and LAX (goodbye CLE) makes so much more sense to me. Not to mention Continental’s strong presence in Central America, South America, and Micronesia. But I think like a consumer and not an executive. A UA-US merger could result in immediate capacity cuts, unlike a UA-CO deal.

Some in the industry think the rekindled talks are an effort by United to tempt Continental back to merger talks. A combined United-Continental would leapfrog Delta as the world’s largest airline by revenue.

My thoughts too.