US Airways and United Part Ways - Now What?

(MoneyWatch)  Thanks to Holly Hegeman for the tip last night that United has apparently called off its merger discussions with US Airways. If you believe the Wall Street Journal, Continental and United are very close to an alliance agreement, and United likes that option better. But we know it's not exactly what United wanted. So, what now?

United's CEO Glenn Tilton hasn't stopped talking about consolidation since, well, he may have actually been born talking about consolidation. He's tried to make something happen several times over the last few years, but so far no takers. Continental walked away last time when they decided they didn't like what they saw, but this time, it was apparently United that walked away from US Airways. Maybe Doug didn't want Tilton to "groom" him and Tilton wasn't having it?

No, seriously. He has apparently walked away because an alliance with Continental is very close. This would see Continental leave SkyTeam and join Star Alliance. That's great and all, but what will it really get them? That's not going to get either airline to shrink hubs or cut many routes, because they still would rather have people fly on their own metal (unless they are able to get some crazy anti-trust immunity deal). Sure, it may increase traffic flows, but the airlines still need to shrink on their own. Regardless, it will keep them preoccupied for a long, long time. That's not good.

I would love to see United ground its entire 737 fleet and proudly announce that it will be dropping fees, hiking fares, and focusing on its role as a premium airline. Fares will go up, but with capacity down.... Ok, I'm just dreaming. That won't happen. But something has to, whether they're sleeping with Continental or not.

Then there's US Airways. Oh boy. What do they do now? With United and Continental coming together in the Star Alliance, does that leave room for US Airways? I'm not sure. As Holly mentions, US Airways isn't ruling out shrinking. I think it's a safe bet that just eliminating free pretzels onboard isn't going to save enough to prevent more change. US Airways has made it clear with its actions that it wants to get you there on time and for a good fare but just about everything else will cost you. I'm surprised they didn't try the first bag fee before American did. We'll probably see more things like that, but will we see it happen while they're a Star Alliance carrier?