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US Airways left out of merger dance

It's been a long while since US Airways played a dominant role in the skies over Florida.

But lots of local travelers, particularly business travelers, still patronize the carrier and are well familiar with its troubles through the past decade. Oceans of red ink. Twin bankruptcies. Waves of layoffs and a fitful merger with America West.

Now, US Airways faces a problem that analysts say could finish off the airline: getting left behind as competitors merge into international behemoths.

United Airlines had engaged in merger talks with US Airways. But United switched gears and made a deal this month to combine with Continental Airlines. Continental chief executive Jeff Smisek ground salt in the wound by saying he didn't want United to marry "the ugly girl." In case anyone missed the point, he said Continental was "the pretty girl."

US Airways chief executive Doug Parker, in a message to employees, called the remark "both chauvinistic and offensive to the hard-working people of US Airways." Smisek publicly apologized.

But the fact remains that United decided Continental was a better partner largely because Continental is a much bigger international player in Latin America and Europe and domestically in New York and Houston.

If federal antitrust officials don't block the deal, the combined airline will unseat Delta Air Lines — which completed a merger with Northwest in 2008 — as the world's largest.

Like mergers in other industries, airline combinations are driven in part by cost savings from cutting jobs and duplicate facilities. And there's potential for new revenue from corporate travel contracts by offering a route system with more destinations.

Mergers help the entire industry, though not necessarily consumers, by reducing the number of seats for sale. Combined carriers typically end up smaller than the two separate airlines. That should let airlines boost fares under normal circumstances.

A longtime advocate for consolidation, Parker told the Washington Aero Club last week that he supported the United-Continental merger, adding that US Airways doesn't need a merger to survive.

Some analysts disagree. There's room for only three large network carriers, airlines with route systems stretching across the United States and flights overseas, said a report by the investment research firm Airline ForeCasts.

The final mega-merger, the report said, should bring together the two U.S. network airlines without partners: US Airways and American Airlines, the world's largest carrier before the Delta-Northwest hookup.

But there are problems. The US Airways route system isn't a good fit with American's. Philadelphia is US Airways' most profitable hub. But New York is American's focus in the Northeast. US Airways already is battling tough low-fare competitor Southwest Airlines at its Phoenix hub.

And publicly, at least, American executives aren't showing interest in a merger.

US Airways has survived some tough scrapes. Can it manage to dance among the elephants?

Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.

US Airways left out of merger dance 05/25/10 [Last modified: Tuesday, May 25, 2010 9:07pm]
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