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US Airways Eyes Global Growth

The carrier, which lags behind legacy rivals in international flights, is seeking to expand its offerings.
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CHARLOTTE, N.C. -- As airlines rush to expand internationally,

US Airways

(LCC)

finds itself uniquely constrained.

The airline's largest hub, in Charlotte, lacks local traffic -- 63% of its passengers here are connecting. Its second-largest hub is Philadelphia, where it is battling for gate space. Its third-largest is Phoenix, but fleet constraints preclude non-stops to Europe. Its fourth-busiest airport is Washington Reagan International, where most international flights are prohibited.

No wonder the carrier launched an ill-fated 2006 bid to merge with

Delta

(DAL) - Get Free Report

. Delta has hubs at New York's Kennedy and Atlanta's Hartsfield-Jackson airports, the top two international gateways, and is expanding international service at both. By 2010, it expects international capacity to be 40%, up from 35% today.

By contrast, US Airways alone among the six legacy carriers has less than a third of its capacity in international markets. At 20%, it is closer to

Frontier

undefined

than to its peers. Though viewed as a domestic carrier, Frontier dedicates 12% of capacity to international service, primarily to Mexico, through a dozen U.S. gateways.

Clearly, US Airways is playing catch-up. "One point that some people may not recognize about U.S. Airways is that we are the fastest-growing major international airline in the U.S.," President Scott Kirby said on a July conference call.

US Airways had 17% international capacity growth in the second quarter, mostly in Philadelphia, where it has 19 European destinations. The intent is to double the number of international destinations from Philadelphia, adding two to three a year for several years, said Senior Vice President Andrew Nocella. Tokyo, Tel Aviv, India and cities in Europe are possibilities, he said. US Airways also wants to fly from Philadelphia to Beijing in 2009.

Expanded European service from the other hubs is also likely. "I don't view the small market size in Charlotte as a primary constraint," Nocella said. "We have a great hub in Charlotte, and there are more things to come." The potential date is 2010.

From Phoenix, the airline could serve Europe with Airbus 330-200s that will begin arriving in 2009. "A lot of connecting passengers go

from Phoenix to Europe on other airlines," Nocella noted.

But Philadelphia remains the focus, and in the short term it presents vexing problems. US Airways' plans depend "on being able to keep our gates on the international concourse in Philadelphia," Kirby said on the call. It is "probably surprising to some that that's a question,

but we are not 100% certain we are going to have those. ... Some elements are talking about taking gates away from us right now."

The conflict in Philadelphia involves airport plans to make four gates available to

Southwest

(LUV) - Get Free Report

, which will lose four of its eight gates to a construction project that starts next year. The plans include moving Delta's domestic flights to a concourse where US Airways now offers international flights.

Airport director Charles Isdell said the airport values US Airways, but has a mandate to serve other carriers as well. "We have 23 gates that can be used for international, and US Airways uses 20 of them every day," he said, adding that 10 of the flights are seasonal. Of the airport's 120 gates, US Airways uses 88. "We're trying to find a way to accommodate the growth they want to bring us, but also to be fair to everyone else," he said.

A short-term solution, Isdell said, might include altering flight times, since the international terminal is fully used only during late afternoons. Another could be suspending underperforming flights. In the long term, the airport is prepared to extend an existing concourse, adding a half-dozen gates. The two sides say they will keep talking.

US Airways' dearth of international flights results from decades of being slower than competitors to add them. America West, its 2005 merger partner, was also primarily a domestic airline.

Aviation consultant Darryl Jenkins says US Airways "may end up finding another gateway through a merger." After all, the attempt to combine with Delta followed a failed 2000 effort to combine with

United

(UAUA)

. The primary intent of that proposed combination was to have US Airways feed United's global route system.

Of course, it doesn't always pay to follow the herd. The two most profitable carriers in 2006 were US Airways and Southwest, both focused on domestic service. "While every other airline is chasing international growth and cutting domestic service, US Airways might be well positioned to go after passengers other airlines are abandoning," said consultant Mike Miller of the Velocity Group. "The key is to be profitable, not to be the biggest international airline."