Making the Case for an AMR/US Airways Merger
CHARLOTTE, N.C. ( TheStreet) -- Beyond acknowledging it has hired advisers to study a potential merger with AMR (AMR), US Airways (LCC) isn't talking directly about its pursuit of the bankrupt carrier.
Yet, piece by piece, US Airways is very publicly starting to lay out its merger case, which is essentially that American is weak in the heavily populated East, while US Airways is strong.
|AMR is weak in the eastern U.S., which is where the passengers are and where US Airways is strong.|
Additionally, US Airways executives have been saying recently that they learned during a failed 2006 bid for Delta (DAL - Get Report) that it is important to secure the backing of employees for a takeover.
"You can't do it on value," US Airways CEO Doug Parker said Wednesday, at a US Airways media day. "You have to have the employees on your side."Parker deflected questions about the effort to merge with AMR. Meanwhile, a labor source close to the AMR creditors committee said "there is little confidence on the committee in the management plan, and that is not just labor speaking," while a US Airways pilot said that Parker told pilots, at an employee meeting in Charlotte, that ample financing is available to mount a takeover bid. In fact, Bloomberg reported Friday that US Airways has already made presentations to some members of the creditors committee. The carrier has not made a formal presentation, but has spoken to individuals, the labor source said. In an interview Wednesday, US Airways President Scott Kirby listed, in order, the four most profitable major airline operations in the U.S. in terms of profit margin. They are Newark, Washington Reagan National, Houston, and Charlotte. Two are East Coast airports dominated by US Airways, while two are United (UAL - Get Report) hubs. Kirby emphasized that US Airways could only estimate profit margins at other carrier's hubs, and said margins at US Airways hubs in Philadelphia and Phoenix are "in the middle of the pack." He would not comment on profit margins at American hubs. But in the past, Kirby has said that it is important to be No. 1 in a hub. If you have a few more flights than your competitor, you can put a few more passengers on each connecting flight, and that is the difference between a profit and a loss in a low-margin business. American is No. 1 in Dallas and Miami, but its cornerstone strategy also includes maintaining a strong presence in Chicago, Los Angeles and New York Kennedy, all airports where it is not the No. 1 carrier.
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