United, US Airways in merger talks again

By Sholnn Freeman and Tomoeh Murakami Tse
Washington Post Staff Writers
Friday, April 9, 2010

A possible merger being negotiated between United Airlines and US Airways would create an airline that dominated the Washington market and could lead to higher ticket prices and fewer flights for passengers traveling to and from the region.

The two airlines control much of the turf at two of the region's airports, with United the major carrier at Dulles International Airport and US Airways on top at Reagan National Airport, and they compete with each other to keep prices low.

"The D.C. area is the one in the target zone if United and US Airways merge," said Rick Seaney, chief executive of the Web site FareCompare. "Anytime you take away competition, it's bad for consumers."

The two airlines would control 60 percent of the seat capacity for flights at the two airports, according to the Official Airline Guide. A region dominated by one major carrier could lead to fewer flights as the merged company looks to reduce costs and cut redundant services, longtime industry observers said. That, in turn, could cause demand to rise, pushing up fares.

But analysts noted that the Washington region is served by numerous low-cost carriers, such as Southwest, JetBlue and AirTran Airways, which would help keep prices competitive.

"The low-cost carriers are certainly going to provide a leveling effect in the markets that they serve, but certainly in markets that are dominated by legacy carriers, they have carte blanche to raise those fares to whatever the market will bear," said Denny Lewis, owner of WorldTravelService, a corporate and retail travel agency based in the District.

Seaney said ticket prices usually drop when a new airline is introduced into the market. He cited as an example lower prices that resulted from Southwest's entry into Minneapolis, Boston and Milwaukee. Mergers can have the opposite effect. "An airline merger is like taking one airline out of the competition in cities where there is overlap," he said.

The talks heating up now are the latest courtship involving the two companies, which have held on-again, off-again discussions over the past decade. A merger proposal is not imminent, and the talks could still fall apart, said sources who spoke on the condition of anonymity because the talks are private. The companies did not confirm the talks and declined to comment.

If it goes forward, the merger would create one of the world's largest carriers and could touch off a fresh wave of consolidation in the airline industry. On Thursday, British Airways and Iberia of Spain signed their merger pact, more than a year after announcing they were in talks. The two companies plan to operate under their individual brands under a holding company to be called International Airlines Group.

United parent UAL Corp. and US Airways have forcefully advocated consolidation within the airline sector. A proposed merger of the two crumbled in 2000, with United blaming the deal's failure on antitrust objections raised by the government. In 2008, the two companies backed away from a planned combination as credit markets tightened in the months before the global financial crisis.

The carriers' latest proposal would probably be subject to close regulatory scrutiny, particularly on antitrust grounds.

"The concerns that motivated the Justice Department in 2000 are still true today," said C. Scott Hemphill, a professor of antitrust law at Columbia University. "There's significant concentration in the Washington area. . . . What that means is for some pairs of cities . . . United-US Air could be the only game in town. For some consumers, that's going to be a major concern."

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