Turmoil on radar for UAL alliance
US Air network-sharing accord being renegotiated
CHICAGO (Crain's Busiess News) - A partnership worth about $200 million annually to United Airlines is up in the air as US Airways merges with a United rival.
US Airways is reinventing itself as a low-cost carrier as it melds operations with America West Airlines. It hasn't decided if it will extend a lucrative "code-sharing" contract with United, which expires in early 2006. A proxy for the merger to which United and US Airways once aspired, the code-sharing agreement allows them to sell tickets on each other's flights, greatly expanding their geographic reach.
But the partners, whose networks and service once complemented each other neatly, increasingly appear mismatched now that US Airways has joined forces with America West to create a nationwide discount carrier that competes directly with United on lucrative transcontinental routes.
United offers competing service for about 20% of the seats flown on America West's portion of the new airline, with much of the overlap involving flights into the discount carrier's hubs at Las Vegas and Phoenix, according to data compiled for Crain's by OAG Americas. By contrast, United competes with just 4% of seats flown on US Airways' traditional East Coast network, according to OAG, which publishes airline flight schedules.
"There's no reason for it," turnaround specialist William Brandt says of the code-share agreement. "US Airways is trying to transform itself into a low-cost carrier. They don't need United."
OPTIMISTIC ON AGREEMENT
The two airlines say they're optimistic they'll reach a new agreement. For now, United continues to book tickets and share revenues for the routes US Airways flew prior to the October merger.
"We're in active discussions and are hopeful as we continue moving forward," says a United spokesman. "It's business as usual."
"Talks are amicable and we clearly think we're better off working out a new agreement," seconds a spokesman for US Airways, before adding the caveat, "We have to do it in a way that makes sense for our business model."
Still, analysts expect the airlines to scrap their partnership. At best, they say, it might be recast as a smaller agreement that doesn't include routes where competition is greatest. Either move would drain revenues from United as it emerges from bankruptcy next year and seeks to post its first annual operating profit since 2000.
Under the code-sharing agreement, the old US Airways flew passengers from the East Coast to United hubs like Chicago's O'Hare International Airport, where they connected to westbound United flights. But the new Tempe, Ariz.-based US Airways will want to steer passengers to the flights it has gained from America West.
Another potential threat to United's revenues: efforts by new US Airways CEO Doug Parker, who formerly led America West, to emulate discounter Southwest Airlines. Mr. Parker, 43, even adopted the stock ticker symbol LCC, aviation industry shorthand for low-cost carrier.
Because United remains a full-fare airline, US Airways will likely offer cheaper tickets. If the two continue code-sharing, US Airways could undercut United's prices for seats on planes flown by United, says Alan Sbarra, principal with Roach & Sbarra Consulting, a Bay Area aviation consultancy.
"It's a big issue," Mr. Sbarra says. "If US Airways is successful, they're going to sell more seats, they're going to steal (market)share from United."
©2005 by Crain Communications Inc.
USA320Pilot comments: Do not be surprised if US Airways is involved in another corporate transaction and scraps the United domestic alliance in the not-to-distant future. Moroever, with the new pilot transition agreement permits US Airways to add EMB-190s to the mainline in addition to the current fleet count, US Airways crews to fly one Hawaiian trip per day, and America West crews to fly two European crews per day. I believe the America West crews will fly Shannon and Dublin off-season service in B757 ETOPS aircraft and we could see more widebody's on the property sooner than the publicly announced new A330 order.
Regards,
USA320Pilot
US Air network-sharing accord being renegotiated
CHICAGO (Crain's Busiess News) - A partnership worth about $200 million annually to United Airlines is up in the air as US Airways merges with a United rival.
US Airways is reinventing itself as a low-cost carrier as it melds operations with America West Airlines. It hasn't decided if it will extend a lucrative "code-sharing" contract with United, which expires in early 2006. A proxy for the merger to which United and US Airways once aspired, the code-sharing agreement allows them to sell tickets on each other's flights, greatly expanding their geographic reach.
But the partners, whose networks and service once complemented each other neatly, increasingly appear mismatched now that US Airways has joined forces with America West to create a nationwide discount carrier that competes directly with United on lucrative transcontinental routes.
United offers competing service for about 20% of the seats flown on America West's portion of the new airline, with much of the overlap involving flights into the discount carrier's hubs at Las Vegas and Phoenix, according to data compiled for Crain's by OAG Americas. By contrast, United competes with just 4% of seats flown on US Airways' traditional East Coast network, according to OAG, which publishes airline flight schedules.
"There's no reason for it," turnaround specialist William Brandt says of the code-share agreement. "US Airways is trying to transform itself into a low-cost carrier. They don't need United."
OPTIMISTIC ON AGREEMENT
The two airlines say they're optimistic they'll reach a new agreement. For now, United continues to book tickets and share revenues for the routes US Airways flew prior to the October merger.
"We're in active discussions and are hopeful as we continue moving forward," says a United spokesman. "It's business as usual."
"Talks are amicable and we clearly think we're better off working out a new agreement," seconds a spokesman for US Airways, before adding the caveat, "We have to do it in a way that makes sense for our business model."
Still, analysts expect the airlines to scrap their partnership. At best, they say, it might be recast as a smaller agreement that doesn't include routes where competition is greatest. Either move would drain revenues from United as it emerges from bankruptcy next year and seeks to post its first annual operating profit since 2000.
Under the code-sharing agreement, the old US Airways flew passengers from the East Coast to United hubs like Chicago's O'Hare International Airport, where they connected to westbound United flights. But the new Tempe, Ariz.-based US Airways will want to steer passengers to the flights it has gained from America West.
Another potential threat to United's revenues: efforts by new US Airways CEO Doug Parker, who formerly led America West, to emulate discounter Southwest Airlines. Mr. Parker, 43, even adopted the stock ticker symbol LCC, aviation industry shorthand for low-cost carrier.
Because United remains a full-fare airline, US Airways will likely offer cheaper tickets. If the two continue code-sharing, US Airways could undercut United's prices for seats on planes flown by United, says Alan Sbarra, principal with Roach & Sbarra Consulting, a Bay Area aviation consultancy.
"It's a big issue," Mr. Sbarra says. "If US Airways is successful, they're going to sell more seats, they're going to steal (market)share from United."
©2005 by Crain Communications Inc.
USA320Pilot comments: Do not be surprised if US Airways is involved in another corporate transaction and scraps the United domestic alliance in the not-to-distant future. Moroever, with the new pilot transition agreement permits US Airways to add EMB-190s to the mainline in addition to the current fleet count, US Airways crews to fly one Hawaiian trip per day, and America West crews to fly two European crews per day. I believe the America West crews will fly Shannon and Dublin off-season service in B757 ETOPS aircraft and we could see more widebody's on the property sooner than the publicly announced new A330 order.
Regards,
USA320Pilot
