Rarely has a secret been so well kept. The merger of United Airlines and US Airways to form a carrier to dwarf all others had been brewing since November, when US Airways chairman Stephen Wolf met his UAL counterpart James Goodwin in a Chicago hotel to propose plans for a possible alliance, only to be astonished when - as Wolf puts it - "out of the blue, Jim began talking something else".
That "something else", we now know, was the biggest airline merger the world has ever seen. The implications are similarly huge. So huge that the deal faces a real battle to win regulatory approval. After all, the US Department of Justice already has a case pending against two other US majors, Northwest and Continental, due to concerns about the former's acquisition of a controlling stake in the Houston-based carrier as part of a planned alliance. In the case of United and US Airways, the impact of a full merger on competition will, if anything, be even greater.
The carrot of slot and route divestment in Washington to permit the establishment of a new airline is hence unlikely to be enough to prompt the DoJ to give the deal the green light, and it will certainly want to address the new giant's monopoly in serving nearly 30 city pairs. Yet the United/US merger already seems to have developed a tangible dynamic, unlike previous takeovers. True, US consumer bodies are up in arms, but the deal looks too plausible - the fit almost too good - not to happen.
By marrying United's transcontinental network to the strengths of US Airways in the eastern seaboard (itself the world's single most important short-haul market), the merger will create a truly "organic" national carrier. With low-cost operations in the east and west, a commuter operation in the east, a string of primary and secondary hubs and gateway airports serving both the Atlantic and Pacific, "new United" will have few discernible chinks in its armour. In this sense the merger is again a break from the past. The last significant round of US consolidation, in the mid-to-late 1980s, saw TWA, Northwest and the then USAir all expand through purchases, but often these were about attaining mass to confirm their "major" status, rather than targeting specific markets. The world is now a very different place. The US hub and spoke system is fully mature and the coming of the regional jet has revolutionised feeder networks, leading to an associated round of consolidation at regional level as majors seek to guarantee feed.
If anything, United had seemed to lag here, weak in the north east (with just 14% market share) and lacking the coverage offered by the Delta Connection - for example - with its burgeoning RJ fleet. The US deal throws United back into a clear lead strategy-wise, with the rationalisation of the two carriers' Express operations likely to answer regional concerns and the enlarged carrier fed from outside by Star, the world's best-developed airline alliance. American Airlines and Delta will have to respond, perhaps through counterbids, or through moves for a second-rank US carrier such as America West.
Neither should the merger be viewed in isolation. As United president Rona Dutta points out, it is in line with an emerging global trend, Singapore Airlines having recently agreed deals to a share in the running of Air New Zealand/Ansett Australia and Virgin Atlantic, Swissair moving to merge with Sabena and British Airways thought to be poised to take over KLM. Dutta says the motivations for these moves "are the same worldwide", although BA privately confesses that European consolidation, if it happens, will merely parallel the changes the US industry went through 10 or 15 years ago.
Amid this frenzy, one clear anachromism stands out; while US carriers may take over other US carriers, and European carriers European ones, nearly all potential cross-border mergers remain illegal, causing airlines such as SIA to build an empire by stealth.
With so many issues of importance - from transatlantic codeshares to alliance options, cabotage and hub access - affected by the United/US Airways merger, surely the question of unrestricted crossborder ownership, key to so much else, should move to the top of the agenda.
Source: Flight International
