Why A Us Airways Merger

mweiss

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Aug 28, 2002
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I keep hearing all of this talk about US Airways merging with another airline. Granted, most of it comes from one poster, but there are others beating the same drum.

So I started asking myself what another airline could possibly want that US Airways has. The list of things I could come up with was really short, namely:

- LGA slots

Nobody else needs to buy US Airways' airplanes, with so many parked in the desert. Everyone else has plenty of furloughees, so the employees aren't of much use (speaking from a merger perspective...naturally, the employees of US Airways are useful in many, many other contexts). The PHL hub is going to be a highly competitive market starting in two months. PIT is relatively low in O&D. CLT might be nice, but its proximity to NW's, UA's, and DL's hubs make it rather unattractive to those three carriers, reducing its overall value (fewer carriers want it, so there are fewer buyers, so the price is lower). Maybe CLT would be valuable to HP if they want to try heading east again...but I doubt they'd want to pay much for it.

So what's left? Anything else? Did I miss something?
 
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Yup. Gates at LGA are in short supply. Gates and slots at DCA, also in short supply. No vacant gates at BOS? I'll admit to being ignorant to the gate situation at BOS...I haven't been there much.

In any case, these pretty much reinforce my sense that nobody wants the airline. They just want access to two or three airports. If that is true, then the net present value of the airline is most likely less than the net present value of the airport rights at those three airports. And if that is true, then the fiduciary responsibility of the board of directors is to sell those assets and liquidate the airline.

Before anyone jumps on me, I'm not suggesting that it is the most ethical outcome. This happens to be one of those relatively rare cases where the contractual obligation leads to a very unpleasant outcome.

Incidentally, I suspect that it's not too late to restructure the company such that the rest of the airline has a positive net present value as well. The parts are there; someone just has to put them together the right way. Siegel does not appear to have the skills to do that, however.
 
mweiss said:
Incidentally, I suspect that it's not too late to restructure the company such that the rest of the airline has a positive net present value as well. The parts are there; someone just has to put them together the right way. Siegel does not appear to have the skills to do that, however.
I don't think it's too late either. We just need to find someone with the knowledge and "know how".
 
Don't underestimate the value of the CLT hub. What NW & UA have in comparison is nothing next to CLT. Many have tried to establish a Hub in the SE to compete with DL, but all except for CLT have failed. AA's attempt with RDU was a flop and NW's MEM hub is a drop in the bucket next to the CLT operation. Don't think that UA or anyone else wouldn't love to build up CLT even more to give DL a run in ATL.
Why do you think that Leo at DL was shaking in his boots at the thought of the
UA/US merger? UA made it clear that they wanted to build CLT up even more after the merger. The CLT area is growing by leaps and bounds and the O&D traffic will only increase in time. The CLT service from many cities in the NE is lacking with only 1 or 2 flights a day while DL has 5-6 to ATL. If this company wakes up and decides to compete somday it will put a hurt on DL. ;)
 
wings396 said:
Don't underestimate the value of the CLT hub.
However, anyone is free to start a hub in CLT tomorrow if they wanted to. There are no government restrictions on CLT the way there are on slots at DCA and LGA. And I would think there is plenty of room at CLT to expand terminals if gates are in short supply, unlike the situation in DCA, LGA, and BOS (and PHL, for that matter) where water and dense urban development surrounds the airports.
 
Just the usual thing ... paying customers.

Bingo.

With reference to CLT, I think there is more worth there than one would like to assume. It is a one airline hub. While others could start up operations there, doing so would only kill one's self but also the incumbent carrier there. US has almost all the gate space tied up and (from what I've heard) is pressed to keep the gates open from all the inbound/outbound traffic. To build an extra terminal (20+ gates) would take at least three years and would involve a financial commitment that I'm not sure the CLT-Douglas authority is ready to make. Why build 20+ gates and incur $170MM in bonds when it will be decided within two years if the incumbent hub carrier will still be occupying the existing 70 gates.

Its not like the CLT metro area is similar to Chicago or Dallas where there are 10+ million people to feed at least two hubbed carriers.
 
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TomBascom said:
Just the usual thing :rolleyes: ... paying customers.
Trust me when I say that those paying customers can be acquired for much less than the cost of acquiring the US Airways operation.
 
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ITRADE,

The thing is, it doesn't take much for someone like WN to quickly erode US's market in CLT. They only need two gates to start.
 
WN can only expand so much at a time. PHL is a long planned out ontaking and CLT would stretch them too far. If anyone buys/merges with US, it will be a ready made hub for them in CLT. There are no slots in ATL either, but nobody has been albe to hurt DL there as of yet. As I said, AA tried RDU to compete with CLT & ATL and it didn't work. If UA merged with US and was able to build the CLT hub into their network it would drain traffic away from ATL. The LGA/DCA slot issue is of interest, but I see the Shuttle market dwindling in the comng years. It is a waste of slots and A/C for US and DL to be running flights 1/2 full every 1/2 hour. To me I think that PHL & CLT are an item that would bring interest by other Airlines. It is easier to have an established hub instead of trying to build one up.
 
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WN is but an example. Besides, you're just talking about matters of time. So WN doesn't have the resources to move into CLT today. How about next year? Any business that looks at the world that way is not planning on being around much longer.

As for ATL, have you noticed how nicely AirTran has been doing? Proves DL doesn't have a lock on that airport.

Finally, I don't think that it's necessarily easier to buy an established hub than to build one up. If you buy one, you have to somehow absorb another company's people and business practices into your own. Sure, you get "instantly" established, but the long-term costs are substantial. If you build one up, it's all your people, who know your business.
 
Things that might be attractive from the United perspective:

- Access to the Caribbean Market Share that US has built
- Access to the European Market Share that US has built
- as mentioned above, BOS, LGA, DCA slots and market share
- the dominant presence in the North East that UA lacks
- maybe some of the 320's or 319's but I don't know about the integration problems that might surface

A merger is doubtful... a fire sale is more likely.

FA4UA
 

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