Legacy Carriers Have Urge to Merge

The heads of at least two legacy airlines still support industry consolidation, even if the concept has temporarily fallen out of fashion.

During conference calls last week, United(UAUA Quote) CEO Glenn Tilton and US Airways(LCC Quote) CEO Doug Parker both continued their strong support for airline mergers. The two carriers attempted one in 2000 but failed to secure Justice Department approval.

At the moment, merger momentum is lagging for a variety of reasons. The industry environment is reasonably strong, and mergers typically occur in a down cycle. Also, the ability to acquire bankrupt carriers and reduce costs in court has subsided as Delta(DALRQ Quote) emerged last week and Northwest(NWACQ Quote) prepares to do the same next month.

The industry's story of the moment is that Delta successfully emerged after fighting off a merger with US Airways. In fact, battling a common enemy helped to galvanize Delta employees in support of the airline's efforts.

Enthusiasm for airline mergers has slipped so far that last week, Joe Leonard, CEO of AirTran(AAI Quote), sought to distance himself from the concept, even though he is avidly pursuing a hostile merger with Midwest(MEH Quote).

"We view [the proposed merger] not as a consolidation story as much as an accelerated growth story," Leonard said during a conference call.

Leonard said only four routes in the proposed combination overlap, highlighting a big difference from US Airways' failed effort to take over Delta, its largest competitor. That effort seemed unlikely to win Justice Department approval, given that it involved the elimination of overlapping routes in hundreds of markets.