This week has been somewhat bittersweet for US Airways. The airline started off announcing the break off of merger talks with United Airlines, that they never initially admitted having. Then, released their first quarter financials that showed dramatic quality improvements. As Doug Parker, the US Airways CEO, spoke before their media day gathering of travel writers, he reiterated consolidation, consolidation, consolidation.
He claims that the US Airways’ failed efforts to merge with United are not a sign of a slowdown of consolidation among the legacy network hub-and-spoke carriers but a continuation of the process of consolidation.
Parker intoned, “Consolidation is good for the industry.” It is no secret that he feels three is the proper number of big hub-and-spoke carriers and that these three would be very competitive
Consolidation is good for this industry. It’s something that needs to happen, will happen, and will result in a much stronger industry. The industry has been so fragmented for so long. While it has some benefits, it has a large number of costs, not the least of which is a very unstable industry which makes it hard to make a profit and very hard on your employees. Consolidation will help with that. It’s not a full panacea, but it’s a huge step.
Recent airline history according to Parker shows US Airways at the center of the consolidation efforts. Parker’s America West took over US Airways to create the company that he runs today.
He feels that his aggressive consolidation efforts served as a catalyst for the most recent merger of Delta and Northwest. US Airways’s earlier attempt to take over Delta Air Lines resulted in the momentum that led to the eventual combination of Northwest with Delta.
Finally, the failed US Airways discussions with United Airlines may end up in a complex twist of fate encouraging Continental and United Airlines to come to the merger altar after parting ways several years ago. (Internal rumblings at Continental indicate merger discussions are indeed proceeding and reports of valuation discussions have been leaked to newspapers.)
So what happens to US Airways when it sits as the little guy in the world of legacy network hub-and-spoke airlines? Delta/Northwest, Continental/United and American would control around 75 percent market share and leave US Airways with about an 8 percent share.
According to Parker, this is just where they want to be. US Airways will be a plum picking for one of the larger network carriers where the US Airways hubs could combine well with with the larger hubs of the big three hub-and-spoke carriers. So, Parker sees consolidation continuing down to three big network carriers and US Airways will be part of that mix.
One factor airline watchers can bet on is that Doug Parker will not sit on his hands. He and his management staff have found a way to revitalize a foundering airline and inject some entrepreneurial spirit from American West.
Parker’s mission of consolidation is by no means complete. With his airline flying on-time, customer complaints dropping, mishandled baggage at best ever rates, capital expenses deferred, ancillary revenues soaring, debt ratios improving, new financing and new international routes, the US Airways management team (never known to be overly conservative) is looking for opportunities for new partnerships and revenue streams.