Analyst: AMR/US Airways Deal Makes Sense

DALLAS ( TheStreet) -- A leading airline analyst is sounding skeptical about AMR's plan to go it alone -- and enthusiastic about the chance of a merger with US Airways ( LCC).

In a note issued Wednesday, JPMorgan ( JPM) analyst Jamie Baker describes himself as "underwhelmed with AMR's standalone restructuring plan" and says that "for this reason, we now ascribe a higher probability that AMR ultimately engages in industry consolidation."
American Airlines could boost its domestic presence by merging with US Airways, a JPMorgan analyst says.

"We believe the merits and regulatory challenges of a US Airways-American combination warrant further consideration," Baker says. He also largely dismisses reports that Delta ( DAL) would pursue American, saying that effort "continues to strike us as a high-risk, lower-probability outcome."

Baker questions American's plan to boost revenues by $1 billion annually, saying the number is "ambitious" for a plan based largely on increased code-sharing and larger regional jets. Baker doesn't mention the fleet improvements cited by AMR Chief Commercial Officer Virasb Vahidi, who believes orders from Boeing and Airbus would enable American to fly routes for which it lacks appropriately sized aircraft.

Baker says Delta and United ( LCC) have superior domestic networks and he doesn't think American can match them. He cited 30 Eastern cities -- including Albany and Buffalo, N.Y.; Columbia, S.C.; Providence, R.I.; and Richmond, Va. -- where the two larger carriers offer more service to their hubs than American does to its hubs. "We examined several smaller cities east of the Mississippi and in most examples found Delta and United offer several hub options," Baker writes. "In AMR's case, well, one can easily get to Chicago."

If you liked this article you might like

Here Are the Best Elite Airline Status Programs

Here's Why New York Area Airports Score Low With Travelers

Stocks Dad Would Have Loved, And Why He Was Right

United Airlines Might Be Having an Identity Crisis That Is Worrying Wall Street