United and US Airways: Why the Merger Won't Happen

Last Updated Apr 8, 2010 1:00 PM EDT

Ugh, here we go again. If I had a nickel for every time United (UAUA) and US Airways (LCC) talked about merging, I'd be a rich man, and well... here we are again. The New York Times reports that United and US Airways are in serious discussions about a merger. I hate to even write about this, because I can't see it happening.

There are so many problems with a United/US Airways merger it's hard to know where to begin. Let's start with the fact that it would bring very little to either party. If a merger like this were to happen, it would be all about trying to reduce capacity rather than growing the airline through strategic acquisition.

Remember, United and US Airways are currently Star Alliance and codeshare partners, so the network connectivity benefits are already mostly realized. With a merger, what do they get? United gets a presence in the southeast and Florida with the US Airways Charlotte hub -- but that's about it. US Airways gets more geographic reach, but they also get a ton of headaches that would likely outweigh the positives.

First of all, the two airlines run into a serious problem of market concentration in DC. US Airways is already struggling to convince the feds that they won't control too much of Washington/National after the slot swap with Delta in New York.Throw in United's Dulles hub, and the duo will effectively control Washington. That'll never fly, and in fact, it didn't fly back when they tried to merge 10 years ago.

Back then, United and US Airways proposed the incredibly stupid DC Air, which would have been run by BET founder Robert Johnson. DC Air would have taken over Washington/National operations, but that didn't work then and it won't work today. They could look to sell National operations to another airline, but that's a lucrative part of the network, so they wouldn't want to do that. When you add in US Airways' large Philadelphia presence, you have a mess of overlap in a very small area. Sure, the combined airline could try to sell something off, but that might very well create more problems than it's worth. The only airline I can imagine buying any airport assets they'd want to sell would be a low-cost carrier, but that would probably a competitive threat. (I'm sure JetBlue is champing at the bit.)

Let's also not forget about market concentration issues in the west. United's LAX, San Francisco, and Denver hubs have a tremendous amount of overlap with the US Airways Phoenix hub. Places like San Luis Obispo would see service drop from two carriers to only one. The feds won't like that.

So as I said, this would be a merger of contraction instead of growth. And a merger of contraction is something that throws up all kinds of red flags for unions. Labor will hate this deal, and they'll fight it tooth-and-nail.

We all know that US Airways CEO Doug Parker and United CEO Glenn Tilton are in love with mergers, so it's natural for them to keep talking. But I just don't see how this gets through in a way that works for everyone. So why is it even on the table?

The conspiracy theories are out there, of course. Some think that this is a way for United to push Continental to come back to the table, for fear of losing out to another airline. If that's the case, then fine. Good luck with your gamesmanship, United, but that's good for United and awful for US Airways. I also think a merger like this would kill the slot swap with Delta in a heartbeat. So US Airways stands to lose a great deal.

Of course, just because this is a bad idea doesn't mean it won't go further. But I will be incredibly surprised if this deal is actually consummated without putting some incredibly creative solutions in place -- and I can't see that happening.