Could United and US Airways Finally Merge?

United Airlines and US Airways are reportedly in talks again over a proposed merger. The carriers have come close to merging twice - firstly in 2000, (but that was eventually blocked by the Monopolies and Mergers Commission) and again in 2008. Routes News analyses what a merger today would mean for the two carriers and the US market.

Judging by the top 10 carriers in the US domestic market (shown below on the basis of weekly scheduled seat capacity), a merger between United and US Airways would consolidate the country's third and fifth largest carriers.

Source Flightbase 14-20 June

Mergers are, by nature, hugely complex. Perhaps the best example of this was the merger of US Airways and America West in 2005, as the two carriers have still not fully integrated their operations today.

A merger between United and US Airways presents some real industrial relations obstacles and there is some opposition from cabin crew and pilots.

If the deal goes ahead, however it would seem to be a logical and effective move for the two carriers. Domestically, the two carriers operate in over 110 markets together, so consolidation would effectively rationalise their networks, cutting routes in a market that has for a long time suffered from over capacity and falling yields, with the growth of the low-cost sector, including Southwest Airlines, Jetblue Airways and Spirit Airlines shaping the current state of the market.

On the domestic network, the pairing would combine US Airways' strong presence on the east coast, particularly its much valued shuttle service linking the business communities of Ronald Reagan Airport (DCA), Washington, New York La Guardia (LGA) and Boston (BOS) with United's strength in the Middle and West America - effectively balancing the network.

The carriers operate from eight hubs between them (far less than the Delta-Northwest merger). United Airways operates from Chicago, Denver, San Francisco, Los Angeles and Washington Dulles, while US Airways focuses its network around Charlotte, Philadelphia and Phoenix.

Philadelphia and Washington Dulles are very close geographically and any merger could possibly see a reduction on Philadelphia-based services (with Washington a bigger and more lucrative market in comparison). US Airways' Charlotte hub provides a good north-south operation and United's Denver hub will be able to connect the west coast to the network. While Chicago remains United's largest hub, it will be difficult to expand there due to its positioning next to American Airlines' hub.

The two Star Alliance members would therefore operate a complimentary network. For example, in the Middle and Far East, United Airlines offers 224 weekly flights (to 14 destinations), whereas US Airways only has a single non-stop service to Tel Aviv.

While in the Caribbean, US Airways operates 370 weekly flights to 28 destinations, compared with United's 79 weekly flights to just 7 destinations. Both carriers are fairly weak in Latin Americas with United serving three markets (Buenos Aires, Rio de Janeiro and Sao Paulo), with US Airways serving just Rio.

The table below illustrates the respective international networks of the two carriers:

Source: Flightbase: 14-20 June, 2010

Europe: Overlapping Networks

The most crossover in their respective networks, however, is in Europe.

The table below shows United and US Airways' current schedule in Europe:

Source Flightbase 14-20 June 2010

A merger would almost certainly mean the rationalisation of European routes in their major markets such as, Frankfurt, Rome Fiumicino (FCO) and Paris Charles de Gaulle (CDG).

While US Airways' European network would provide United access to 10 new destinations (though some are on a seasonal basis currently). Equipment used on the European routes is fairly similar, with United being able to operate B777s on the major international routes and B757s on thinner routes. Plus, both carriers operate B767s and A330s on other (European) routes.

Alliance Benefits

As both carriers are part of Star Alliance, a merger would make sense particularly for US Airways, which since the inauguration of Continental Airlines into Star, has found itself becoming very much the third player in the North American market for Star Alliance.

There is no doubt that US Airways has actively been searching for partners for a number of years and a merger would arguably give the carrier true global reach. Much may yet depend on United's perspective and how beneficial a tie-up with US could be, given that Continental Airlines is also in Star Alliance and has access to a New York gateway in Newark and a greater global network.