Combining may help money-losing airlines, but travelers could see fewer options, higher fares

Passengers may not love a big airline combination

MINNEAPOLIS — Bigger isn’t necessarily better for airline customers.

United and US Airways are talking about combining into what would be the second-largest U.S. carrier. Travel watchers said that although a reduction in service and competition works out for money-losing carriers, it’s not usually to the benefit of airline passengers.

“Mergers tend to be a net negative for consumers,” said Tim Winship, the editor of FrequentFlier.com.

A combined United-US Airways would trail only Delta Air Lines Inc. in size. Combining them “would inevitably result in a significant loss of competition, the predictable result of which would be an increase in airfares in certain markets,” Winship said.

The last big airline combination — Delta and Northwest — has so far gone as well as could be expected for both airlines and passengers. Airfares have actually dropped in the time since the deal closed in late 2008 but that largely reflects the recession’s impact. People who can travel have enjoyed deeply discounted fares over the past year. Airlines cut fares to keep leisure travelers flying, as business travel dropped sharply. U.S. carriers all reduced capacity too. Airlines are beginning to see business travel return.

Rick Seaney, CEO of FareCompare.com, said it will take another year to see whether fares increase in the long run because of Delta’s purchase of Northwest.

He said competition is the main thing that drives ticket prices lower. United and US Airways are both major carriers in Washington, although that market also has extensive service from discount carriers.

“Anytime you take somebody off the board, regardless of how much overlap they have, it’s a net bad thing for consumers because it’s less competition,” he said.

Both United and US Airways have been improving their operations. In February, even as massive storms tied up East Coast flights, United and US Airways had the top two arrival rates among international carriers, according to Transportation Department data released Thursday.

It’s far from certain that a deal will actually take place. Antitrust regulators would have to clear it, and pilots from different unions would have to be integrated. And it’s unclear which name would survive, where the combined company would be based, or who would run it.

Winship said he’s most worried that the US Airways approach to travelers would be the one that survives. He said US Airways gave away about 4 percent of its seats to frequent fliers last year — half the rate of United, American, and Southwest. And US Airways riled passengers last year when it tried to charge for bottled water; it backed down.

“Overall, they have been a pretty consumer-unfriendly airline,” he said. If US Airways is the corporate culture that survives, instead of “a midsized consumer-unfriendly carrier, we would have a mega consumer-unfriendly carrier,” he said.

The general thinking among analysts, and airline executives including United CEO Glenn Tilton and US Airways CEO Doug Parker, has been that the U.S. has too many big carriers offering too many seats. That drives down ticket prices and makes it harder to turn a profit. US Airways and United lost a combined $856 million last year.

UBS analyst Kevin Crissey wrote in a note that no major U.S. airline is earning a profit that justifies the size of its investments.

“Consolidation, though not easy, riskless, or free, is a logical way to attempt to rectify this long standing problem,” he wrote.

He estimated that a major combination such as United-US Airways would reduce capacity as much as 3 percent, mostly in the U.S. With fewer seats and competition, fares should rise, he wrote.

Except in Washington, the two carriers appear to have little overlap. US Airways has 3.1 percent of the capacity in United’s top markets, Crissey wrote. United has 5.3 percent of the traffic in US Airways’ top markets.

Combining work forces is often a major hurdle for airline combinations. Before Delta bought Northwest the two airlines got their pilots to agree to the framework of a deal to integrate their ranks. By comparison, America West bought US Airways in 2005 and those two pilot groups still aren’t merged.

On Thursday, pilots at United — who are deep into negotiations for a new contract — suggested they’re likely to oppose a combination with US Airways.

The union doesn’t oppose a merger that helps the careers of United pilots, said Wendy Morse, chairman of the Master Executive Council of the United branch of the Air Line Pilots Association, and a Boeing 777 captain.

“A merger with US Airways does not appear to come close to meeting that standard. We vehemently oppose any merger that would not lead to a strong and viable United Airlines,” she said in a prepared statement.

Both companies continued to decline comment on the reported talks on Thursday.

Both carriers have tried for combinations in the past. Tilton and Parker, their current chairmen and CEOs, were both involved when their companies talked about a tie-up in 2008. They walked away then citing high fuel prices, but didn’t rule out a future deal. That same year, Continental Airlines Inc. rejected United’s attempt at a combination.

American Airlines was the country’s biggest carrier until Delta bought Northwest. If the United-US Airways deal happens, American would be down to third. In the airline business, size means more than bragging rights — corporate travelers gravitate toward airlines with the most routes.

Speaking in Los Angeles on Thursday, American CEO Gerard Arpey didn’t sound worried.

“We are not in any way threatened by any of the conversations that are rumored to be taking place in the industry because we think we’re in a very good position irrespective of what may happen,” he said.

AP Airlines Writer David Koenig in Dallas contributed to this report.