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Airline Industry

US Air CEO: Mergers needed in recession  Mar 24, 2009

The recession, which has eroded travel demand and punished U.S. airlines, makes consolidation among major airlines more important now than ever, the chief executive of US Airways Group said on Tuesday.

Although tight credit markets currently make mergers difficult, if not impossible, consolidation is still needed among the top five major U.S. carriers, Doug Parker told Reuters in an interview on the sidelines of a company media event.

"Sometimes it takes difficult times for people to be more open to consolidation," Parker said. "We're in difficult times right now."

Parker is a longtime proponent of mergers as a way to generate airline efficiency and cut excess capacity. US Airways, in its current form, arose from a 2005 merger with America West. The carrier later made a hostile bid for Delta Air Lines, which was rejected before Delta went on to buy Northwest Airlines.

The U.S. airline industry was battered in 2008 and continued to suffer in early 2009 as the weak economy drained travel demand. However, airlines were better braced for the downturn than they might have been thanks to downsizing last year as carriers struggled to offset their fuel bills.

Airlines also generated new revenue by charging for items and services, like bag checks, that used to be included in the price of a ticket.

US Airways, and other top carriers, have seen business travel decline more rapidly than leisure travel this year as companies curb travel costs.

Parker declined to predict when travel demand might pick up, but he said government officials, who have recently criticized executives for extravagant travel spending, should encourage travel. Travel industry leaders have blamed those officials for dampening demand for business trips.

"It would be nice if, indeed, our government officials would let people know that travel is an important part of getting the economy stimulated," Parker said.

Airline analysts generally expect the U.S. airline industry to be profitable in 2009 despite the recession. US Airways expects to earn a profit even if its passenger revenue falls 15 percent, company president Scott Kirby said on Tuesday.

Shares of U.S. airlines closed mixed on Tuesday after Barclays Capital said revenue trends should improve in coming months after a disappointing March.

"As we expect revenue trends to stabilize over the coming months, we think the stocks are poised for additional upside as investors get visibility into better-than-expected earnings outcomes for 2009," Barclays analyst Gary Chase said in a research note.

US Air CEO: Mergers needed in recession
Doug Parker / Image via Dennis Brack/Bloomberg News/Landov

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