What's Next for U.S. Airways?
U.S. Airways story updated with quotes from United and Continental CEOs.
But that day will come, says CEO Doug Parker. And in the interim, it is important to ignore two prevalent misconceptions. One is that US Airways' labor situation blocks any deal. The other is that US Airways will struggle until it finds a merger partner.
On Monday, following the announcement of a merger between Continental (CAL) and United (UAUA), shares in US Airways and Alaska (ALK) were the biggest beneficiaries, trading on speculation that they could become acquisition candidates.Meanwhile, United CEO Glenn Tilton said United did not use US Airways as a stalking horse in order to engage Continental. "When Jeff (Smisek) called me on the ninth of April, which happened to be my birthday, we were very serious about the work we had underway at that time, very serious indeed," Tilton said in a conference call, referring to the US Airways/United merger talks. But "at the end of the day, industrial logic and the compelling proposition that we have presented to the marketplace today trumps [any] work you may have had underway." Meanwhile, the Continental CEO Jeff Smisek, who will head the new United, said he learned of the US Airways/United talks in the newspaper. "I didn't want him to marry the ugly girl, I wanted him to marry the pretty one," Smisek said. "And I am much prettier." Smisek did note, however, that Parker is "a very handsome man." In the short term, while it may be merger-deprived, US Airways appears poised to benefit as much as any carrier, from the ongoing recovery. Eventually, it may also participate in a merger, quite possibly with the backing of its pilots union. An April 12 meeting between Parker and leaders of the U.S. Airline Pilots Association apparently represented a turning point, because it led to a distinct thaw in a relationship that has been frosty for years. In the meeting, Parker indicated that a merger with United was possible, after months of talks. Obviously, once Continental stepped in, that possibility passed, but the receptiveness of USAPA executives Mike Cleary and Randy Mowrey belied the view that U.S. Airways unions would try to block a deal. "We were encouraged by their understanding of the potential value of a transaction to our pilots and their apparent willingness to work with the company if a transaction was possible," Parker said, in an interview with TheStreet. "The attitude on both sides and the willingness to work together felt nice. "I don't believe that any strategic opportunity that makes sense for the company and makes sense for our pilots would result in opposition from out pilots," Parker added. Parker would not comment directly on whether he suggested that a merger would lead to a contract resembling what Delta (DAL) pilots have, but he said nothing to discourage the concept. US Airways maintains that because its hubs in Charlotte, Philadelphia and Phoenix serve smaller population centers than do larger hubs in Atlanta, Chicago, Dallas and Newark, it has a 10% revenue disadvantage to its peers. "The only way to produce the same profitability of those carriers is to have a cost advantage," Parker said. "We do that today largely with the labor cost advantage. It's a rational assumption that if we got to the point where we didn't have a revenue disadvantage, through getting our revenues combined with those who have higher revenues than we do, that would provide an opportunity for employees to see improvements in pay."
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