Rivals not scared of airline merger - East Valley Tribune: Business

Rivals not scared of airline merger

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Posted: Saturday, May 21, 2005 7:24 am | Updated: 10:00 am, Fri Oct 7, 2011.

A strengthened US Airways could become a more formidable competitor along the East Coast, but the proposed merger of Tempe-based America West Airlines with the bankrupt carrier is not likely to have much of an impact to the U.S airline industry, experts said Friday.

"Most airlines would rather see US Airways dead than alive, but they’re not terribly concerned about the combination," said Mo Garfinkle of GCW Consulting. "The good news is they believe America West is a more rational competitor with more rational pricing. The bad news is they won’t be competing with a weakened US Airways."

On Thursday, hometown airline America West and Virginia-based US Airways announced they would merge to form the country’s sixth largest airline with a fleet of 361 planes, more than 44,000 employees and annual revenue of $10 billion.

The merger would save bankrupt US Airways from an almost certain crash landing with its scattered assets from planes to airport gates ripe for scavenging by other U.S. airlines. And the proposed deal would nearly triple the size of the hometown airline and launch it like a wall of power throughout the East Coast.

The new airline would remain based in Tempe and piloted by America West’s turnaround master Doug Parker, but it would name itself US Airways.

The deal is expected to close in the fall, but it has some regulatory approvals to land first, including getting the OK from bankruptcy court.

A day after the big announcement, US Airways shares sank 29 cents to 95 cents at the market close Friday. America West shares rose 36 cents to $5.17.

Garfinkle said a completed merger won’t have much impact on the competition. Southwest Airlines, which recently established a hub at Philadelphia and is looking to do the same in Pittsburgh — both US Airways strongholds — still has a better cost structure and wouldn’t feel much heat from an America Westrun airline, he said.

And if the merger happens, integration will be a two- to three-year process sure to cause indigestion for the combining carriers, he said.

Southwest Airlines is focused on its own operation and plans no changes in response to the proposed merger, said spokeswoman Whitney Eichinger.

"We’ve competed with both carriers over the years and pretty successfully," Eichinger said. "We’ve had 20 strong years in Phoenix and Las Vegas. We opened Philadelphia last year and it was one of our strongest and most successful openings. We’ve more than doubled to 46 flights a day."

Southwest began its foray into Pittsburgh May 4 and plans to grow it in the same way, she said.

A beleaguered Delta Airlines could be challenged because it could be competing with a stronger foe in the East.

But Delta spokeswoman Benet Wilson said the airline is not concerned.

"Delta already has low fares, worldwide routes, technology and strong relationships," Wilson said. "This is between America West and US Airways."

In fact, Delta recently announced it will hook up with Mesa Airlines in October for connecting routes within its system. Wilson said Delta is anxious to get the partnership off the ground, but she would not speculate whether they would try to pick up any potential routes or gates unwanted after an America West-US Airways merger.

Mesa Air Group CEO Jonathan Ornstein said he has long-term contracts to fly smaller airplanes on regional routes for America West through 2013, so nothing would change other than the merged airline might relocate some of those flights to the East Coast.

The Phoenix-based airline also flies routes for United and is ready to begin flying for Delta.

Mesa had pulled its 59 flights out of US Airways and rerouted the service to Delta and United because of concerns about US Airways’ viability.

"We are just trying to manage our risk," Ornstein said. "Mesa has been pretty successful in the last few years because we manage our risk and do not have too much exposure to one carrier."

Ornstein said if the merger is successful and Parker is able to grow the airline, there could be new opportunities for Mesa Air.

While some speculated that other airlines might try to divvy up chunks of US Airways while it is in bankruptcy, Garfinkle said any attempt to thwart the merger is unlikely to succeed.

"It would be hard for someone to suggest to a bankruptcy judge that buying pieces is a better deal for creditors than buying the whole thing," he said. And finding a better complete merger offer than the America West proposal is just as unlikely, he said.

The merged airline probably wouldn’t leave much for other airlines to pick over in the way of gates either, since there is little overlap in routes, said airline industry analyst Bill Oliver of The Boyd Group. "If there is any trimming, it will probably be the small markets, and those probably won’t be picked up," he said.

Both Oliver and Garfinkle said they don’t think the America West-US Airways hook-up will lead to merger mania among other carriers.

"This was a unique situation, a limited opportunity," Oliver said. "US Airways was a failing carrier. America West did well in difficult times and is ready to grow and expand."

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