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USA TODAY
April 19, 2010 Monday
FIRST EDITION
MONEY; Pg. 6B
601 words
Is United seeking three-way deal with US Airways and Continental?;
Merger would face antitrust obstacles
Dan Reed
United Airlines' talks with US Airways and Continental Airlines could result in more than just a simple merger of two big airlines.
Some analysts suspect that United is trying to put together a complex three-way deal that, in effect, would create a global aviation leader almost 50% larger than current No. 1 Delta.
To pull that off, United -- which is already a Star alliance partner with both airlines -- would have to convince antitrust regulators and Congress that such a large and unprecedented combination of carriers wouldn't reduce flight options and lead to higher fares. They'll also have to win the support of labor unions.
"United's 'Plan A' all along has been to do a merger with US Airways and keep Continental as their alliance partner with antitrust immunity," says independent analyst Hubert Horan. An executive at Northwest Airlines in the 1990s, Horan helped build the first international airline alliance, with KLM.
The current alliance between United and Continental allows them to divvy up international routes to fly and jointly set fares on those routes.
United's alliance with US Airways, because it does not have antitrust immunity, is mainly promotional.
The size of the combined airlines and significant overlap among the markets they serve could make it hard to get any deal approved by antitrust regulators.
United/US Airways would dominate the Washington, D.C., market. And the three airlines together would have unmatched strength in the Northeast -- with hubs in New York, Philadelphia, Washington and Charlotte. Over time, the airlines might squeeze out competition and drive up average fares in the region and to and from Europe.
Rivals, including Delta and American, would likely fight such a mega-combination.
But Horan argues that by using "the same legal language and concepts already used to justify all the other (airline) alliances that have been given antitrust immunity, you could justify allowing Continental to continue to have antitrust immunity with a larger, merged United."
A merged United and US Airways would rank as the second-largest U.S. airline, behind Delta, in passenger miles flown. Delta reported 163.7 billion passenger miles flown in 2009 by itself, and 188.9 billion including its regional airline partners.
United and US Airways combined flew 158.4 billion passenger miles last year. And if the miles flown on their regional partners are included, they combined to fly 209.2 billion passenger miles, 20 billion more than Delta and its regional partners.
Meanwhile, Continental flew 79.8 billion passenger miles last year, 89.1 billion counting those flown on its regional partners.
The carriers also would have to persuade unions to accept a deal that some don't appear to favor. Wendy Morse, head of the Air Line Pilots Association at United, said last week that her pilots prefer merging with Continental. Other unions at United also are leery of a US Airways merger.
Analyst Vaughn Cordle at AirlineForecasts.com, says labor's support for a merger can be "bought" by using a combination of big pay raises in the 10% range and shares in the merged airline.
Convincing United's and Continental's shareholders and employees that a United-US Airways merger is the better approach won't be easy. A merger with Continental creates more value, Cordle says.
Horan sees it differently.
"In 2008, Continental decided it was better to get 85% of the benefits of merger by joining in a partnership with United ... (than to) deal with all the labor issues and fleet issues and integration issues that would have come with" a full merger, he says. "Nothing's changed."
April 19, 2010
