United, US Airways talk about combining

April 8, 2010 6:23:36 PM PDT
Chicago-based United Airlines is reportedly in merger talks with US Airways for the third time in a decade.

A deal would create the nation's second biggest airline, behind Delta. But the biggest hurdle to an agreement could be the carriers' complex labor contract.

When asked about possible merger discussions with US Airways, United says, "We never comment on rumor or speculation." United said something quite similar a decade ago as talk began to build around a possible merger with US air. That time, both parties made it to the altar.

In May 2000 United announced its intent to buy US air in a deal valued at over $11 billion. The marriage never happened. Unions fought it. There were anti-trust objections. Both airlines would later fall into and climb out of bankruptcies.

Now, a decade later, the aviation landscape is much less friendly, and economic necessity may be rekindling marriage vows.

Does United need this to survive?

"Maybe," said Aaron Gellman, former Director of the Transportation Center, Northwestern University. "It's very possible that they may need this to survive."

United is much smaller than it was 10 years ago. Its labor costs are far lower. The same is true of US air.

But as industry analysts frequently say, there remain too many airlines fighting for the profit pie. Delta and Northwest merged to become the world's biggest airline. A United and US air merger would be a close second. The question is, Would it survive anti-trust challenges?

"I'm not sure either politically, or from a legal standpoint, they can justify much more concentration in this business," said Gellman.

"There's real questions here as to whether the Obama administration is going to go for this. There's a sense that big-time corporate consolidations have anti-consumer implications. There's going to be a fight," said Joe Schwieterman, DePaul University.

Still, having said that, transportation expert Schwieterman gives the merger plan pretty good odds.

And, for the flying public, mergers have predictable consequence.

"Higher prices. Everything that reduces competition. There would be reduced competitions, so that would result in higher prices," said Gellman.

That, of course, is what government regulators will weigh and measure if United and US air formally announce their vows.

"I think we're bound to see another wave of consolidations, probably can't be two mega airlines merging, but US Airways is small enough that it may fall below the radar screen," said Schwieterman.

If United and US air ultimately do announce a desire to merge, government regulators will be taking a hard look first at those markets where both airlines share operations. That's where higher pricing would be most immediately noticed.

As was the case 10 years ago, United's pilots say they are vehemently opposed to any merger with US air, saying in a statement Thursday, that it wouldn't benefit the careers and long-term future of the pilots and wouldn't lead to a strong and viable airline.