Archive for Friday, April 23, 2010

US Airways, United end consolidation talks

April 23, 2010

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— US Airways has broken off talks with United Airlines, leaving United to pursue a deal with Continental Airlines that would reshuffle the lineup in the airline industry.

US Airways, the nation’s sixth-largest carrier, didn’t say Thursday why it ended talks with United, although Continental’s involvement appears to have played a role.

Renewed discussions about airline consolidation come as fuel prices are on the rise. While demand for air travel has improved from recession lows, major carriers are still struggling to turn profits. Several major carriers, including Continental, reported first-quarter losses this week.

Analysts have long maintained that, despite deep capacity cuts, the airline industry needs to further shrink to become consistently profitable.

United and Continental considered combining in 2008 — the same year Delta Air Lines completed its acquisition of Northwest Airlines — until Continental broke off talks.

The industry landscape has changed dramatically since then. Continental has a new management lineup since its earlier talks with United, although Continental CEO Jeff Smisek was president and chief operating officer under the previous CEO.

United has also tried to burnish its finances and image in the two years since.

“They’ve been able to improve revenue and cut costs,” said Helane Becker, an analyst with Jesup & Lamont.

US Airways, meanwhile, is the product of one combination and long been the seeker of another.

“US Airways was ready to sign a deal with United when they found out United was more interested in signing a deal with Continental,” said a person who was briefed on the discussions. The person was not authorized to speak publicly, and spoke on condition of anonymity.

“There are some very hurt feelings in Phoenix,” the person said. US Airways Group Inc. is based in Tempe, Ariz., a suburb of Phoenix.

A US Airways official who spoke on condition of anonymity because the person wasn’t authorized to publicly discuss private conversations said the airline’s decision to break off talks was a business one, not an emotional one. “No one is licking any wounds here,” the person said.

US Airways said that while its board decided to end talks with United, it believes it remains viable as a standalone airline.

United, a unit of UAL Corp., based in Chicago, did not directly address US Airways’ comments in a statement.

Smisek declined to comment on the US Airways decision.

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