Jan. 26--US Airways CEO Doug Parker confirmed Wednesday that his company is exploring a merger with American Airlines while that carrier is in bankruptcy, but said a merger is not imperative to US Airways' survival.
Any combination of US Airways with another airline could have big effects for Charlotte Douglas International Airport, where the Tempe, Ariz.-based company operates about 90 percent of daily flights.
Parker's remarks came during a conference call Wednesday, when US Airways reported its fourth-quarter and full-year earnings. Although profits were down in the face of higher fuel expenses, earnings fell less than analysts had predicted and the airline avoided posting a loss.
"We are, of course, always interested in studying potential value-enhancing opportunities," Parker said of a merger with American. "We have indeed retained Barclays Capital, Millstein, and Latham and Watkins. We anticipate that we and our advisers will be studying the situation for quite some time."
American in bankruptcy
American is still early in the bankruptcy process, and Parker said he doesn't expect any more concrete developments for a while. US Airways is the smallest major legacy carrier, ranking fifth in passengers. American ranks third.
Parker is well-known as an advocate of airline consolidation and has said there is one big merger left in the airline industry -- a merger involving US Airways. He's also familiar with mergers in bankruptcy court.
As CEO of America West, he engineered the acquisition of US Airways in 2005 while it was in bankruptcy court. Later, he attempted a takeover of Delta while that airline was in bankruptcy court.
US Airways also has twice unsuccessfully attempted to merge with United on Parker's watch.
For the fourth quarter, US Airways reported a profit of $18 million, or 11 cents a share, on revenue of $3.2 billion. Revenue was up 8.5 percent, although profit was down 36 percent, compared with $28 million during the fourth quarter last year.
For 2011, US Airways reported a profit of $71 million, down sharply from last year's profit of $502 million. Revenue for the year rose 9.6 percent, to $13 billion.
US Airways attributed most of the plunge in profits to higher fuel costs. The carrier spent $4.5 billion to fuel its planes in 2010, compared to $3.2 billion last year, a 40 percent increase.
Deal far from certain
But despite the higher fuel costs, airlines have been able to avoid another wave of bankruptcies, American excepted. They have done so in part by passing on costs to consumers through fare hikes, which is easier since there are fewer competing airlines.
They've also constrained capacity -- US Airways said its mainline capacity was down 1.3 percent in the fourth quarter -- and added a raft of fees, such as US Airways' $25 fee for the first checked bag.
Parker said US Airways' second straight year of profitability reflects the industry consolidation. Since 2008, Delta and Northwest have combined, United and Continental have merged, and Southwest acquired AirTran. American, the only legacy carrier not to merge, recently sought Chapter 11 bankruptcy protection.
A deal to bring together US Airways and American is far from certain at this point. Delta and a private equity firm are also reported to be examining an acquisition of American. And American also has the exclusive right to submit its own reorganization plan for up to 1 1/2 years.
Thorny labor issues also could pose a problem. US Airways has been unable to integrate its pilot groups since merging with America West, and negotiations with its pilots union have dragged on unsuccessfully for years.
"Here's an airline that's still trying to complete its last merger," said Seth Kaplan, of the trade publication Airline Weekly. "If they make a decision to pursue something, it won't be because they think it won't be messy. It will be because they think the mess is worth it."
Charlotte important hub
Charlotte Douglas is US Airways' busiest hub, with 595 daily flights for the airline and its US Airways Express carriers. The company also has hubs in Phoenix and Philadelphia, and has cranked up its presence at Washington's Reagan National Airport.
At the same time, over the past several years US Airways has dramatically reduced its presence at other cities, such as Pittsburgh, Las Vegas, and New York's LaGuardia Airport.
Charlotte's importance as a hub has grown during that time. Charlotte Douglas aviation director Jerry Orr said Wednesday that he believes the city will always be a competitor with Atlanta to be the pre-eminent hub in the Southeast.
"Whatever happens and how it happens, it will be probably a slight adjustment in the scenario for Charlotte," said Orr of a possible merger. "Until something happens, it's hard to talk about that."
American has hubs at Miami, Dallas/Fort Worth, Chicago O'Hare, New York and Los Angeles. Kaplan said Charlotte is likely to remain an influential hub, whatever happens in a merger.
"Charlotte is a really nice hub. If you can't have Atlanta, Charlotte is a nice alternative for being able to connect small cities," said Kaplan.
A combination of US Airways' strong Southeast presence through Charlotte with American's Latin and South American routes through Miami would be attractive, Kaplan said.
"Each airline has strengths the other airline doesn't have," he said.
US Airways' stock closed up more than 17 percent Tuesday, at $7.52 a share.
Portillo: 704-358-5041
Copyright 2012 - The Charlotte Observer, N.C.
