Why US need a merger

[damajagua]

Why US Airways Needs a Merger

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{"s" : "amr,cal,dal,lcc,uaua","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} ByTed Reed, TheStreet.com Staff Reporter , On Friday July 23, 2010, 12:01 pm EDT
CHARLOTTE, N.C. (TheStreet) -- Want more evidence that US Airways needs a merger? Throughout the world -- and the nation, as you can see below -- major airlines are defined by their hubs. That's a problem for US Airways, because its hubs are not the best.



Rest of article deleted by moderator it's a violation of copy right laws to post the entire article. If you want to post the link it will be allowed.

Also read board rules rule 4 at top of forum.

 

[gaucho99]

Here's a link to the article:

http://www.thestreet.com/story/10809225/1/why-us-airways-needs-a-merger.html

I agree with most of what it says......but I don't see any merger involving US in the next couple of years. I see us growing at a moderate rate and strengthening our financial situation...some day down the road, we may merge with AA or UA/CO.

 

[cynic]

Here's a link to the article:

http://www.thestreet.com/story/10809225/1/why-us-airways-needs-a-merger.html

I agree with most of what it says

I'm not sure I agree entirely with the premise of the article. If the important thing is to have a "better" hub, then US has very little appeal in any merger. Unless you want a secondary hub to flow traffic through and that could be done with natural growth instead of acquisition.

If you want to disprove the theory behind the article, look at Southwest. How many of their hubs, and yes they have hubs, are on that list?

 

[Jester]

I'm not sure I agree entirely with the premise of the article. If the important thing is to have a "better" hub, then US has very little appeal in any merger. Unless you want a secondary hub to flow traffic through and that could be done with natural growth instead of acquisition.

If you want to disprove the theory behind the article, look at Southwest. How many of their hubs, and yes they have hubs, are on that list?

Cynic,

I agree entirely that if US lacks the primary hub cities, why would AA desire to merge with US? Of course, there is DCA which would be a premium destination, but is it worth a merger? AA dumped its secondary hubs in SJC, RDU, STL, and BNA for a reason in order to focus on the higher business fares with non-stops into DFW and ORD with international hubs in MIA, LAX and JFK, which serve domestic markets, as well. A merge with US would just be to eliminAAte competition and dismantle hubs, and I question the value of that proposition.

US may just be a secondary hub airline which cannot garner the extra 10% RASM of AA in DFW, DL in ATL or UA in ORD, and will need to work on a lower cost structure. As you mentioned, SWA has focused on secondary hubs for most of its existance, and with great success. Instead of looking for a larger merger partner, I am thinking US is looking for a merger with a smaller airline which either fills in the geographic gaps (F9 in DEN and MKE) or one which brings a premium niche market (B6 in BOS and JFK or AS in SEA). Being an efficient operation, covering most of the US, while being profitable is not the worse outcome for an airline.

So Analyses Jester.

 

[gaucho99]

Cynic,

I agree entirely that if US lacks the primary hub cities, why would AA desire to merge with US?


Here's why:

http://www.thestreet.com/story/10767689/american-needs-us-air-merger-analyst.html

 

[FWAAA]

I applaud cynic and Jester for their well-reasoned, well-written posts. My guess is that AA and US eventually end up at the altar but it wouldn't surprise me if it didn't happen. After all, over the years, AA has missed the boat to acquire NW (with which AA discussed merger in 2000 prior to the TWA purchase) and didn't make any moves to buy UA during their weakest times this past decade. If Crandall, Carty and Arpey were unwilling to buy airlines with extremely desirable traits like Tokyo fifth freedom rights, or large hubs in SFO, LAX, IAD or ORD, then why would Arpey combine with US? Granted, PHL does attract significant O&D traffic and the CLT hub is very nice (despite the lack of substantial O&D) but there's a reason the PHX hometown airline (HP) was a very low-cost carrier. PHX just ain't getting all that much high-yield business traffic.

But stranger things have happened than a merger between AA and US.

 

[Piedmont1984]

Cynic,

AA dumped its secondary hubs in SJC, RDU, STL, and BNA for a reason in order to focus on the higher business fares with non-stops into DFW and ORD with international hubs in MIA, LAX and JFK, which serve domestic markets, as well. A merge with US would just be to eliminAAte competition and dismantle hubs, and I question the value of that proposition.


So Analyses Jester.

Another way to look at this is that AA made an attempt to establish a SE hub in BNA and RDU, but the attempt was not successfull. CLT, however, is a successfull, growing hub which I think would be attractive to them. And DCA and PHL are no slouches either.

 

[nycbusdriver]

Another way to look at this is that AA made an attempt to establish a SE hub in BNA and RDU, but the attempt was not successfull. CLT, however, is a successfull, growing hub which I think would be attractive to them. And DCA and PHL are no slouches either.

The reason their attempt was not successful is mostly due to the proximity of the CLT hub. This also happened when Continetnal Lite tried to hub GSO.

At some point AA wanted a SE hub. They tried it twice and failed. The question is: "How badly does AA want a SE hub today, if at all?"

 

[SparrowHawk]

I'm sorry but I just don't think US needs a merger, at least not in the short term. Short time defined as next 3 to 5 years.

There is one thing many forget in looking only at hub O & D and that's the focus cities where US is the number 1 or 2 player market share wuse. BOS, LGA, DCA are the equivelent of beach front property. CLT helps US avoid the nightmare that is ATL.

Even post merger US is still a dominant carrier on the East Coast and still generates a significant revenue premium. US can do more to boost that dominance through prudent managed growth to South America and Europe. Secondly US should work the Star Alliance to death by leveraging the alliance to the greatest extent possible.

I still want US to strengthen its balance sheet and then go after Republic. A/C type is the same and the hubs look like PHL, CLT, Milwaukee, DEN & PHX which to me is a pretty good spread of hubs across the country. Maybe not a outright merger but an aquisition where Republic becomes a wholly owned like PSA and PDT. Maybe even keep the Frontier brand and go the code share route. If Mesa wets the bed entirely, somebody has to pick up the slack. Buy Republic and things get different for US's competitors.

US Airways has to me been always somewhat different than the other big airlines and the key to me going forward is for US to leverage the continued East Coast dominance & the revenue premium it generates, build the balance sheet to the point when merger or aquisition opportunities present themselves, US is in the drivers seat and is the aquirer instead of the aquiree.

 

[PHL]

AA has a lot of soul searching to do after this past quarter's results. Their number one problem, even from a 6th grade math student's perspective, is labor costs. They are above all the rest. The mechs and flight attendants unions are at a standstill, with the FA's authorizing a strike, but the NMB hasn't yet started that 30 day cooling off period. The TWU members, at least on this board, are overwhelmingly already voting no.

This opens the door to a Ch 11 filing and, therefore, anything can happen including a merger....

So, something with AA will likely happen in the next 12 months depending on how those two labor groups come to terms with management....

 

[nycbusdriver]

Even post merger US is still a dominant carrier on the East Coast...

I would hardly characterize USAirways' east coast presence as a "dominant carrier." US dominates out of the cities of Philadelphia and Charlotte, and dominates one of the three Washington airport (DCA), but not that entire Washington market by any stretch. They are a minor player in Boston and New York (which was not the case very long ago.) They are a bit player in Atlanta, and their Florida presence is mediocre and sporadic.

 

[redheadtempe33]

I'm sorry but I just don't think US needs a merger, at least not in the short term. Short time defined as next 3 to 5 years.

I still want US to strengthen its balance sheet and then go after Republic. A/C type is the same and the hubs look like PHL, CLT, Milwaukee, DEN & PHX which to me is a pretty good spread of hubs across the country. Maybe not a outright merger but an aquisition where Republic becomes a wholly owned like PSA and PDT. Maybe even keep the Frontier brand and go the code share route. If Mesa wets the bed entirely, somebody has to pick up the slack. Buy Republic and things get different for US's competitors.

+1

Of the remaining carriers, Republic/Frontier makes the most sense. Hub's in Denver and Milwaukee would do a lot to add to US's weak midwest presence. Plus most other carriers have a higher cost structure than US, so a merger with them might make US's network unprofitable. Republic's market cap is within US's reach so it is really the only merger left that wouldn't result in the US brand going away.

Also, I think Brian Bedford is wise to diversify and do both for fee and at risk flying. With Republic, US would have a fair amount of in-the-bag income.

 

[john john]

Why US Airways Needs a Merger

To get rid of SHARES

 

[PHL]

I would hardly characterize USAirways' east coast presence as a "dominant carrier." US dominates out of the cities of Philadelphia and Charlotte, and dominates one of the three Washington airport (DCA), but not that entire Washington market by any stretch. They are a minor player in Boston and New York (which was not the case very long ago.) They are a bit player in Atlanta, and their Florida presence is mediocre and sporadic.

US has the largest route network on the East coast if you are talking about routes within the East coast. The express operations in PHL, CLT, BOS and LGA pretty much cover all the smaller cities. Yes, UA has a large operation from IAD and DL from ATL, but not much more for either of them.

 

[zethya]

US has the largest route network on the East coast if you are talking about routes within the East coast. The express operations in PHL, CLT, BOS and LGA pretty much cover all the smaller cities. Yes, UA has a large operation from IAD and DL from ATL, but not much more for either of them.

United's IAD hub is much smaller in passenger numbers than US in either PHL or CLT. 5/2009 - 4/2010 / PHL 12M (US Only), CLT 21M (US Only), IAD 7.5M (UA Only). These numbers include affiliated commuter carriers. In fact of the 3, only CLT is considered a "Fortress Hub". UAs superiority at IAD is primarily in their "premium" passenger Yields and worldwide coverage (Asia, Europe and South America), versus PHL. However, US has significantly more presence in Europe than does UA from IAD.