US Airways Chief Parker Sees ‘One Big Deal Left’ for U.S. Airline Mergers
US Airways Group Inc. (LCC) Chief Executive Officer Doug Parker said he sees “one big deal left” in the U.S. airline industry, with the carrier possibly tying up with its three largest competitors.
“That deal could happen one day, or it might not,” Parker told reporters today in Tempe, Arizona, where the airline is based. US Airways is the smallest full-fare U.S. carrier, behind United Continental Holdings Inc. (UAL), Delta Air Lines Inc. (DAL) and AMR Corp. (AMR)’s American Airlines.
“There is one big deal left, and that’s with US Airways,” said Parker, 49. “I believe any of the three of them at the right time could do something with us if we wanted to and they wanted to.”
Parker’s comments reinforced his support for industry consolidation after three failed attempts at mergers since 2006. He fell short in a hostile bid that began that year to acquire Atlanta-based Delta, and talks collapsed in 2008 and 2010 on a tie-up with the former United Airlines.
“They want to be prepared for whatever may come down,” said Robert W. Mann, president of R.W. Mann & Co., a Port Washington, New York-based consultant. “That’s been their consistent theme.”
US Airways fell 5 cents to $8.40 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 16 percent this year.
United and Continental Airlines Inc. merged last year to form United Continental, leapfrogging Delta to become the world’s biggest carrier. Delta achieved that status by buying Northwest Airlines Corp. in 2008, vaulting past American.
A merger involving US Airways is much less likely with a smaller carrier, such as JetBlue Airways Corp. (JBLU) or Alaska Air Group Inc. (ALK), President Scott Kirby said in an interview. Those airlines have cost structures or networks that wouldn’t complement those of US Airways, Kirby said.
Size matters for airlines because larger networks help carriers attract corporate contracts for business travelers, who are prized because they pay the highest fares. US Airways is fifth in the U.S. by traffic, after United Continental, Delta, American and discounter Southwest Airlines Co. (LUV)
US Airways is working to keep operating costs lower than those of larger rivals and boost revenue after its 2010 profit snapped two years of losses. The airline has risen to near the top of the industry since 2007 in government rankings of on-time arrivals, baggage handling and consumer complaints.
Not for Sale
“We’re not putting the company up for sale,” Chief Financial Officer Derek Kerr said in an interview. “Our focus is not consolidation.”
US Airways wants to “be in a position, if there’s more consolidation, we’re there and ready and strong enough to make our own decision versus being in a position where we have to be taken over,” he said.
The company in its current form was created in 2005 when Parker, then CEO of America West Holdings LLC, orchestrated a merger with the old US Airways, which was in bankruptcy.
“There’s no doubt that a merger would be in the best interest of our employees,” said Steve Johnson, executive vice president for corporate and government affairs. “We can’t afford to pay our employees what they pay at American, Delta and United. Everyone would be paid more under a merger.”
US Airways workers will still be paid less after they negotiate new labor contracts because the carrier must maintain lower costs than its larger competitors, he said.
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