Company Watch - United Airlines

AirGuide Business, May 5, 2008

May 5, 2008

Continental is also in advanced talks with United Airlines for a full merger, the sources said. Continental will choose either the merger or the alliance, not both, sources said. Meanwhile, United Airlines is also in serious merger talks with US Airways, and will choose to merge with either Continental or US Airways soon, the people said. Apr 28, 2008

United Airlines said it will continue in its hunt for consolidation after Continental retreated from any possible merger - in a statement, president and CEO Glenn Tilton said: [sup.3]Consolidation in underway - ensuring you have the right partner is everything. [sup.3]We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders and benefit our employees and customers.[sup.2] Apr 29, 2008

The parent of United Airlines, which held unsuccessful merger talks with Continental Airlines, said it would pursue all options to ensure a sustainable future." Ensuring you have the right partner is everything," UAL said in a statement. "We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders." Earlier on Sunday, Continental said it had decided against merging with any other airline, but will explore alliances with other carriers. Continental had called off talks with United due to the other carrier's weak financial condition, and "the increasing cost of oil increases the risk of doing an airline merger," a source briefed on the matter said. Apr 28, 2008

If United Airlines parent UAL and US Airways Group merged, the pairing could result in massive cost savings for the new carrier as well as higher fares for the troubled industry. But, in order for a merged airline to win those benefits through consolidation, the two carriers would have to take on the painful tasks of closing hubs, grounding planes and slashing jobs where United and US Airway overlap. Industry experts say the prime benefits of consolidation come from reductions in capacity, the number of seats for sale. Less capacity lets carriers charge more for tickets. In the last two years, major carriers have removed capacity from less profitable domestic routes and bolstered lucrative international routes. The strategy has led to higher ticket prices and stronger airlines. Fare increases, however, have not kept pace with rising fuel costs, which are directly linked to the price of oil. As a result, airlines posted big losses in the first quarter, and pressure is mounting on carriers to merge. Klaskin said a United/US Airways merger could lead to a 25 percent reduction in their combined capacity. But he predicted capacity cuts closer to 10 percent. May 4, 2008

Since March, four small airlines -- Aloha Airlines, Champion Air, ATA Airlines and Skybus Airlines -- have shut down amid increasingly hostile industry conditions. Low-cost carrier Frontier Airlines, meanwhile, filed for bankruptcy protection but said it would continue flying during its reorganization. Experts say the industry desperately needs consolidation, but the jury is still out on what mergers make the most sense. Although UAL Chief Executive Glenn Tilton and US Airways CEO Doug Parker have long advocated consolidation, their airlines may be particularly odd merger partners. United, which completed a massive bankruptcy reorganization in 2006, suffered the largest first-quarter loss of the major airlines this year. The carrier still faces ill will from its labor groups, which made steep sacrifices to save the carrier. US Airways, itself the product of a 2005 merger of America West Airlines and the former US Airways, still operates with two separate labor forces. The integration of a third labor force would present further complications, although experts generally believe labor issues would not torpedo a merger with United. May 4, 2008

Sources said last week that United and US Airways could reach a merger deal soon. An agreement would come on the heels of one announced last month by Delta Air Lines and Northwest Airlines, which are planning to form the world's largest airline, to be known by Delta's name. The Delta deal features cost savings and revenue improvements amounting to about USD$1 billion a year. But the proposal currently offers no capacity reductions as the two airlines' operations have little overlap. While Delta and Northwest may be depriving themselves of hefty cost savings, their pairing may have a relatively easy time winning approval from the US Justice Department, unions and travelers. United and US Airways, on the other hand, could face higher antitrust hurdles resulting from the strong presence of both airlines on the East Coast, especially in Washington DC. They also would risk customer backlash if they cut service or raised fares in popular markets. May 4, 2008

A merger between United Airlines and US Airways would be a mistake said United[sup.1]s division of pilots union Alpa. Speculation of a deal has been rife since the breakdown of talks with Continental, and United MEC [division of Alpa] chairman Captain Steve Wallach said in a statement that this has created enormous concern. The union says US Airways significantly trails other legacy carriers in generating cash flow from operations, and in 2007 it ranked at or near the bottom among all legacy carriers in every measurable category: on-time arrivals, mishandled bags and customer satisfaction.[sup.1] Both airlines posted large losses for the first quarter this year - United $542m, US Airways $236m - largely due to ballooning fuel bills, and consolidation is seen as one way of combating the problem. Delta and Northwest expect to save more than $1bn a year through fusing operations. But the union is worried about the airlines[sup.1] compatibility in practical terms. Apr 30, 2008