US Airways CEO hints more airline consolidation may be ahead
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Could US Airways boss Doug Parker be thinking about a merger -- again?
Fresh from creating the nation's fifth-largest carrier last fall with the union of the old US Airways and America West Airlines, the boyish-looking chief executive officer admitted in an interview yesterday that the subject of consolidation is still on his mind. And he hinted that the most attractive combinations for US Airways could involve the country's third- or fourth-largest carriers, Delta Air Lines and Northwest Airlines.
Both of those carriers are still in bankruptcy, and as US Airways learned in 2003 and 2005, both will be able to drastically reduce costs by giving unneeded airplanes back to lenders or renegotiating labor contracts -- making either company more attractive to potential partners.
It "presents an opportunity that may not exist for a long, long time," said Mr. Parker, who was in Moon yesterday to dedicate a new US Airways aircraft outfitted with an old Allegheny Airlines tail logo.
Surrounded at a US Airways hangar yesterday by autograph seekers and requests for group photographs, the popular Mr. Parker was careful to point out that no official talks are under way.
But as Delta and Northwest get closer to emerging from bankruptcy, they may look for a merger partner on the way out, as US Airways did in 2005, and if that happens "we will be there to talk to them," Mr. Parker said. "It's not like something is certainly going on or we are actively working on anything right now." But, "we can't ignore it. It is too big a deal, and it may not come around again."
Talk of more mergers in the U.S. airline industry is heating up again as the major carriers recover from five years of extreme pain and more than $30 billion in losses. One good sign was that the newly merged US Airways made money in this year's first quarter despite the soaring costs of oil and jet fuel, and several other carriers reported operating profits, too.
All mainline carriers are seeing the benefits of cutting unprofitable routes wherever possible, taking unneeded seats out of the sky and raising prices -- even as demand from the traveling public remains strong.
But the times haven't been so good for the smaller discounters that gained so much ground in recent years.
JetBlue Airways, which begins service in Pittsburgh today to Boston and New York and yesterday again topped other airlines in customer-satisfaction scores from J.D. Power & Associates, has turned in two consecutive quarterly losses and scrapped long-haul routes in favor of shorter routes while delaying orders for 12 aircraft and announcing plans to sell five more. And Independence Air went out of business.
Still, even with the many cuts among major carriers and Independence Air's exit, some observers argue the industry needs more cutting and consolidation, saying it will make the remaining carriers healthier. "Basically, we still have too many seats, too many hubs and too many legacy carriers," said Ray Neidl, an airline analyst with Calyon Securities in New York.
Another factor fueling the merger speculation is the feeling that antitrust regulators in Washington, D.C., are more willing to consider new business combinations than they were just a few years ago -- a trend Mr. Parker alluded to yesterday.
So, what carriers are out there looking? United Airlines, which recently emerged from bankruptcy, Delta, Continental Airlines and US Airways are all interested in more consolidation, according to longtime Virginia airline consultant Darryl Jenkins, who advises carriers around the country.
American, the nation's No. 1 carrier, is not interested, he said, nor are Northwest or Alaska Airlines -- the latter frequently mentioned as a possible merger partner for many of the nation's largest carriers. Because its route network is so different than most, Alaska is "one of the most attractive merger candidates," Mr. Jenkins said. But, "I think they are the least likely to want to merge with anyone else."
American, he said, is already too big to merge with a rival, and others point out that it is still smarting from a difficult 2000 merger with TWA. Northwest, Mr. Jenkins said, is afraid of the labor and integration challenges of merging two different airlines. Among the others that may sit out any deal-making are Southwest Airlines and JetBlue, according to Mr. Jenkins.
Asked what carriers might not participate in the next round of consolidation, Mr. Parker mentioned American and Continental, saying their costs are not low enough. "I think it would be harder for them because they still have work to do on their own restructuring," he said.
However, both Delta and Northwest would fit well with US Airways' existing network, some said. Both would give US Airways a stronger international presence, with Delta strong across the Atlantic and to Latin America and Northwest owning prized routes to and from the Far East.
But Colorado airline consultant Mike Boyd claims Delta is not interested in a merger. " I know they are not," he said. "The chairman of Delta told me that they are not."
United, Mr. Boyd said, is the only carrier actively looking for a partner, now that it is out of bankruptcy. Senior management "is trying to shop the company," he said. But "that doesn't mean we need consolidation and it doesn't mean it will work."
Nor would a merger of Delta and US Airways make sense, he said, calling it a "major mess" bringing together fleet types and unions that are too different. "It looks good on paper, but in reality it doesn't work," he said.
Still, Mr. Jenkins is convinced that Mr. Parker wants to build the nation's largest airline -- through mergers -- and that the union of US Airway and America West was just the first step.
"He definitely wants to make himself bigger," he said of Mr. Parker. Mr. Parker did the US Airways deal because "he wanted to be ahead of the power curve. He has always made it clear this is what he wants."
Asked yesterday if his long-term goal was to create the nation's largest airline, Mr. Parker deflected the question by saying, "We want to be the nation's best air carrier and that doesn't necessarily mean the biggest."
He made it clear that his priority now is the completion of the US Airways-America West union, which could wrap up in 2007. "But what we have learned so far is there is a lot of value to be had by taking two airlines and putting them together," he said.
First Published June 30, 2006 12:00 am