So, who gets the ‘Ugly Girl’?
The CEO of Continental called US Airways an Ugly Girl! As he was describing why his company jumped up to negotiate a merger with United Airlines, he said that they did so to ensure that United did not get married to the ‘Ugly Girl’ – US Airways, who United was in merger talks with. You can read more details of his statements and apology to US Airways in this article on The Wall Street Journal. (Note: I have no affiliation to WSJ).
So what happened to the Ugly Girl, left jilted as she was being courted by United? Well, she is still out there, looking for a favorable suitor. US Airways has explicitly expressed a desire to merge with a larger carrier. With the creation of the huge mega-airlines Delta, from the merger of Delta and Northwest and the upcoming United, from the merger of United and Continental, US Airways is feeling threatened. If US Airways does not grow and grow fast, it will be relegated to a second-tier regional carrier status. Some might argue that it is already there.
US Airways, in its current form, was created by the merger of America West, a smaller domestic airline based out of Phoenix and the nearly bankrupt and severely hurting US Air. US Air had been negatively impacted by several bad crashes and very bad financial troubles. As an airline today, it is primarily a domestic airline, with hubs across the US – in Philadelphia, Charlotte, Phoenix and Las Vegas. It has a few international routes. They are all to Europe or the Caribbean and operate out of their Philadelphia and Charlotte gateways. To become a large International carrier, they have to merge with a larger airline with an existing international network. Organic growth by acquiring routes and aircraft to provision those routes, in these economic times is unrealistic.
The only real suitor for US Airways out there is American Airlines. There has been speculation of these two airlines merging, but nothing serious seems to be going on. Other than American, there is no large US based airline with a global network that has not gone through a merger in the recent past. And the government will not allow them to merge with a foreign owned airline. This merger would require US Airways to leave Star Alliance and join OneWorld. That itself is a long and arduous journey for US Airways. I am personally hoping that this won’t happen. I fly a lot of routes where US Airways dominates and I like earning miles on United when I fly them.
The only other option would be for US Airways to merge with another regional or domestic carrier (Republic?). Such a merger would still leave them as a domestic carrier but will potentially provide them with spare aircraft inventory from overlapping routes that they could use to fly new international routes.
Personally, I am no big fan of US Airways. I fly them a lot and actually believe that their reputation is worse than reality. I even wrote an article on them a few months ago titled – US Airways Sucks, or does it? I do still want them to succeed and hope they will find a good suitor. Ugly or pretty, remains to be seen.
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Las Vegas isn’t much of a hub anymore for US; they’ve been cutting capacity there in a way that makes Delta’s CVG operations look like they’re growing. And they definitely are not.
As for US needing to merge with AA to grow and survive there’s a niggling little problem that you’re ignoring: The original America West/US Air merger still isn’t really complete. The unions still haven’t figured out how to merge seniority lists and operations so the carrier really is still two airlines with the same name. The Pilot’s union has a particularly toxic relationship with management. Who would want to take on that problem and add another set of unions into the mix? You’d have to be some sort of nut.
Oh, and AA doesn’t actually have any money on hand to finance such a transaction. Maybe they could get Citibank to buy a few billion more AA miles to fund them a bit more.
No matter what there is a lot lined up against the idea of an AA/US merger, or anyone wanting to take on the beast that is US right now.
Wandering Aramean, so what you are saying is that US Airways is an ‘Ugly Girl’ and needs to be left alone? 😉
Financially even the CO-UA merger seemed unlikely a year ago. US wants to merge with someone. Hopefully they thought the union issues thriu before expressing their desire to do so.
US Airways-American would be a mess. Doesn’t mean it won’t happen, but unclear how valuable it would be to American.
Does it make sense for American to operate a Phoenix hub when they have substantial operations in LA? Or should they shut down LA? And if so, they have no real West Coast strength… something they’ve been striving for unsuccessfully for years (they botched the acquisition of Reno Air towards that goal..). Now, if they bought US Airways *and* Alaska and ceded LA to United and Delta to fight over, that could kinda make sense. But why not just operate more heavily out of LAX?
And does it really make sense to have a hub in Philadelphia which they’d acquire with US Airways, when they have substantial operations at JFK? (not to mention a huge hub a few hundred miles away at ORD.)
Sure, they’d pick up Charlotte. And that could be valuable to them. They never really made Raleigh work, but could give CLT a try. But is buying US Airways worth it just for CLT and perhaps DCA? Can’t imagine it with all the labor problems.
American is a bankruptcy waiting to happen, sustained by relatively low fuel prices and an economy that seems to be supporting more air travel. The last thing they should do is buy US Airways…
Gary, thanks for the great analysis. I do hope for US’ sake that they get ‘picked up’ by a merger partner. All signs do seem to indicate a rocky road ahead. The new UA, sitting up there on its perch along with DL, do relegate US to a side show amongst the large national carriers.
why not southwest. i have not taken the time to see what jets scareways flys but make southwest even bigger and dump simple to join the points on sw program etc. just and idea.
@deltaPMflyer, US Airways’ ticket symbol LCC notwithstanding, will never happen.
If I were US Airways, I would work on my labor relations and grow organically.
But assuming management isn’t that smart or dedicated, and is looking for quicker path towards size (as opposed to profitability), I’d pick up Alaska and rationalize operations between LAX and PHX. And I’d go looking to build a hub somewhere in the middle of the country. Pick up Republic? Maybe.
None of these options are really appealing though.
There’s NOTHING WRONG WITH being who you are, focusing on operational excellence, improving your labor relations (for better productivity, customer relations, and ultimately profitability) and then growing strategically when it actually makes sense for your bottom-line.
Mergers and acquisitons rarely pan out..