A report that United Airlines has put on hold merger talks with US Airways while it also talks to Continental Airlines prompted analysts to wonder Monday if US Airways was merely a “stalking horse” to bring the other two carriers together.
United and Continental, the third- and fourth-largest U.S. airlines, plan to begin sharing financial information this week and may reach a decision on whether to merge by next week, according to unnamed sources quoted by Bloomberg News.
United and Continental were reported last week to have begun discussing a merger of their networks – only a few days after it was revealed that US Airways and United had started talking in February – reviving talks that stalled two years ago. A United marriage to either of the others would create the world’s largest airline, surpassing Delta and American.
“There’s a fair suspicion US Airways was just put out there as a stalking horse,” said airline consultant Robert W. Mann of Port Washington, N.Y.
None of the three airlines would comment on the Bloomberg report.
Whatever happens on the merger front, Philadelphia air travelers won’t have to worry about any significant cuts in flights in the early years of a merger, the industry experts added.
But over time, Philadelphia could become less competitive by being squeezed between Continental’s hub at Newark Liberty International Airport and United’s hub at Washington Dulles International Airport, they said.
About two-thirds of the passengers using Philadelphia International Airport, US Airways’ main East Coast domestic and international hub, are called “origin-and-destination” travelers, who live or work in the region or are visiting here and aren’t just changing planes.
Given its large regional population with a healthy demand for air travel, Philadelphia is likely to continue being a hub for some time, with ample domestic service and a fair number of nonstop international flights, the experts said.
But both Philadelphia and Newark, N.J., use the highly congested airspace around the New York area and have limited ability to expand terminals and other ground facilities. Dulles doesn’t face the same issues, making it easier to expand international service there, the analysts said.
“I think Philadelphia as a hub is in more danger from a United-US Airways combination” than a United-Continental merger, said Roger King, an analyst with Credit Sights in Norwalk, Conn. “Dulles is not a strong hub like Newark.”
Mann said that, under any scenario, Philadelphia could become more of a US Airways “focus city,” an industry term for a place with ample direct service to many markets, but fewer connecting opportunities.
All three airlines are members of the Star Alliance, the marketing and service partnership of almost two dozen airlines around the globe, and US Airways could remain a member even if the other two carriers merged, he said.
But US Airways could find itself at a disadvantage in trying to attract long-haul international travelers – the most lucrative segment of the market – were Continental and United to become the world’s largest carrier, Mann said.
From a Wall Street perspective, analyst Jamie Baker of JPMorgan in New York said in a report to investors Monday that shareholders would be better off were United to merge with US Airways rather than Continental.
More overlapping routes for US Airways and United means they would reduce more capacity, or available seats for sale, and United would save more money integrating the two workforces, compared with a Continental merger, he said.
On the New York Stock Exchange, United shares closed Monday at $21.66, down 5.12 percent; US Airways at $6.89, down 3.64 percent; and Continental at $21.98, down 4.35 percent.