US Airways, United in advanced merger talks

US Airways was reported today to be in advanced merger talks with United Airlines, a possibility that industry experts say would likely leave Philadelphia International Airport with much of the service it has now.

The Associated Press, quoting a person close to the negotiations, said US Airways Group Inc. and United's parent, UAL Corp., expected to announce within two weeks that they were combining.

US Airways Group's stock price jumped on the news. Shares were up $1.14, or 16 percent, in afternoon trading on the New York Stock Exchange.

The carriers stepped up their talks after Continental Airlines Inc. "caught United off guard" by deciding not to pursue a deal between the two that had been widely expected, the AP said.

Neither US Airways nor United would comment on what their spokesmen portrayed as "rumors and speculation." US Airways has almost two-thirds of the flights and passenger traffic at Philadelphia International Airport, which is the airline's main international connecting hub.

US Airways chief executive Doug Parker has said that he believes consolidation within the airline industry is inevitable because of the need to reduce capacity, or the total number of seats available for sale, and because of soaring fuel costs.

The AP report did not indicate whether, if the merger takes place, US Airways would acquire United or vice versa. Nor was it clear whether US Airways' or United's senior executives would come out on top, running what would be one of the world's largest airlines.

But if US Airways were the acquirer, Philadelphia would most likely remain the key East Coast domestic and international hub, industry consultant Richard S. Golaszewski said. US Airways has more than 400 flights a day, including more than 20 to Europe in the summer, from Philadelphia, while United has fewer than two dozen, all of them domestic flights, on an average day.

Golaszewski, executive vice president of GRA Inc., a Jenkintown consulting firm, said Philadelphia is a more robust domestic connecting point for US Airways than Washington Dulles Airport is for United. But US Airways' hub at Charlotte, N.C., its largest domestic hub, might not be so fortunate, he said.

"I would think Philadelphia is in much better shape than Charlotte," he said. "You'd have to figure out what to do with the Dulles hub. . . . Philadelphia is well-established as a domestic hub. What makes Philadelphia work is the US Airways feed into there. As an international hub, you combine that with a large local market."

Merger discussions among airlines have stepped up sharply in recent weeks because of the proposed acquisition by Delta Air Lines Inc. of Northwest Airlines Corp.

Combined, US Airways and United have about 91,000 employees and annual revenues of $31.8 billion.

Wall Street analysts were taken by surprise by Continental's decision to remain independent, and aren't sure how much they like a US Airways-United combination.

"We believe this signals Continental's confidence in its go-it-alone strategy and heightens the probability of a United/US Airways transaction, the only transaction that seems achievable in our view," said Goldman Sachs analyst Christopher Cuomo in a report to investors. "However, we remain skeptical of the benefits that could be achieved by consolidation, in particular as skyrocketing fuel and the likelihood for weaker travel demand present more immediate challenges."