US Airways: Someone, Please Merge with Us

It’s not going to happen tomorrow, but US Airways now appears resigned to bidding a fond adieu to its brand and merging with a larger airline.  US Airways President Scott Kirby told a group of pilots that in all likelihood the airline would end up merged with either United, Delta or American.  He sees basically no option for merging with a smaller airline (Alaska’s costs are too high; Hawaiian is too leisure focused; Southwest learned from its failed merger with Frontier not to mess with pilot seniority, etc).  He stressed that US Airways is in pretty decent financial shape, so it’s not as if they’ll close up tomorrow.

But (and I’m hardly the first to point this out), many industries exist or have existed with 3 major players (Pepsi/Coke/7Up; Ford/Chrysler/GM; Yahoo/Google/MSN, etc) and it looks like the airline industry will be comprised of Delta, United and American with about 70% of the market, with the rest splintered between Southwest, jetBlue, Alaska and a handful of other small players.  Three major airlines allows for actual competition, plus space for niche carriers to compete on price or product.  This has basically already happened, with jetBlue and Virgin America leading on product, and Allegiant Spirit leading on price.  Until the recent spate of mergers, there were simply too many network carriers serving the same routes.  With their consolidation, there is room for everyone to make money.

Well, until new entrants start up when the economy gets better, and then you end up with the same downward pricing pressure we’ve seen over the past 10 years.  And as Kirby says in that article, jetBlue would be in the red if it had the cost structure of US Airways.  Staff seniority makes a massive difference in cost.  In 5 years we’ll see the 3 major airline scenario, but then the startups will be nipping at their heels.  Ah, the spiral.

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