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US Airways Chief Sees Deals on Horizon

CHARLOTTE, N.C. -- Airline industry consolidation is nearing and US Airways (LCC) may well take part, CEO Doug Parker suggested, but he isn't convinced one deal that's been rumored will actually fly.

Specifically, he said widespread assumptions that UAL (UAUA) and Continental (CAL) would ultimately seek to join forces are flawed because of the potential disruption to the Skyteam alliance.

Parker discussed consolidation scenarios Thursday on a conference call after US Airways reported a fourth-quarter loss that was smaller than had been expected. As for mergers, "something is going to happen in my view, and once that happens, I think all of the big six are going to participate," he said.

Conventional wisdom has it that Delta (DAL - Get Report) will seek to tie up with Northwest (NWA), triggering a deal between UAL's United and Continental.

Delta, Northwest and Continental are members of Skyteam, while United is in the Star Alliance. Delta has held talks with Northwest and reportedly with United, as well.

"I don't think Delta has any choice at this point but to do what they're doing and follow through," Parker said, noting that US Airways sought to acquire Delta a year ago for $10 billion to $11 billion. "They turned us down," he said. "Today, their airline is worth something less than $5 billion. Rightfully, shareholders get upset at something like that.

"Delta and Northwest getting together makes a lot of sense for that alliance," he continued. But if the result leads Continental to leave Skyteam, "that doesn't seem like you've created a lot of value," he said. "I'm not sure why they would do a transaction that would cause that to happen. The trans-Atlantic presence of Continental is one of the better Skyteam assets."

Liked United, US Airways is a Star Alliance member. Parker declined to comment on the possibility of a US Airways and United deal. However, he noted that while there is value in linking compatible international route networks, "the bigger value, and what will be the value of any of these actions, is rationalizing the domestic network," which are too fragmented.

US Airways and United made a merger deal in 2000, but after United lost interest, the Justice Department turned it down. The same deal would provide United, which already has a vast international system, with key pieces it lacks: a strong New York presence and a Southeast hub in Charlotte.

United declined to comment Thursday. CEO Glenn Tilton was asked Tuesday whether the current alliance factors into consolidation talks. "You can assume that absolutely everything goes into the mix of consideration," he responded.

For the quarter it just completed, US Airways had a loss of $42 million, or 45 cents a share, excluding special items. Analysts had estimated a loss of 76 cents. Revenue declined 0.4% to $2.8 billion, in line with estimates. A year earlier, it earned $86 million before items.

During the quarter, mainline passenger revenue per available seat mile rose 3.9%, while consolidated PRASM was up 4.3%. Consolidated capacity fell by 4.4%.

Mainline cost per available seat mile excluding fuel rose 5.8%, driven by capacity reductions and increased staffing. The employee count was 34,437, up 1.1%. US Airways said its on-time performance improved as a result. CASM grew 9.7% as fuel costs increased by $230 million.

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