US Airways and UAL talk about combining

News that United Airlines and US Airways are in talks about combining was met with approval by shareholders and analysts Thursday.

Passengers may feel differently, however, if a combination ends up leading to higher airfares.

Shares of both companies rose in morning trading. US Airways gained 83 cents, or 12.2 percent, to $7.65, and United Airlines parent UAL Corp. rose $1.38, or 7.3 percent, to $20.33.

News that two airlines are talking broke Wednesday afternoon. Both carriers have tried for combinations in the past. United Chairman and CEO Glenn Tilton and US Airways Chairman and CEO Doug Parker were both involved when their companies talked about a tie-up in 2008. They walked away then citing high fuel prices, but didn't rule out a future deal. That same year, Continental Airlines Inc. rejected United's attempt at a combination.

Neither airline has confirmed the talks. It's far from certain that a deal will actually take place. Antitrust regulators would have to clear it, and pilots from different unions would have to be integrated.

Still, "the merits of a potential (United-US Airways) marriage are considerable, in our view," J.P. Morgan analyst Jamie Baker wrote.

UBS analyst Kevin Crissey wrote that he thinks a major combination such as United-US Airways would reduce capacity as much as 3 percent, mostly in the U.S. With fewer seats and competition, fares should rise, he wrote.

Travelers wouldn't like that, but money-losing airlines would.

Baker noted that wage scales at the two carriers are more closely aligned and are among the industry's lowest, he wrote. They're both in the Star Alliance, which means their computer systems already communicate with each other because they sell tickets on each other's flights.

How antitrust regulators would react is uncertain. Regulators approved Delta's purchase of Northwest in 2008. But since then, the Justice Department has put up roadblocks to a slot swap between Delta and US Air at LaGuardia and Reagan National airports.

If US Airways and Delta "can't pull off a simple slot transaction, how likely is a combination that rivals Delta in size and scope," Baker wrote, "particularly when neither carrier is failing?"

Based on 2009 traffic, a combined United-US Airways would be nearly as big as Delta Air Lines Inc., which became the world's largest airline after buying Northwest. It is unclear which name would survive, where the combined company would be based, or who would run it.

Integrating the two airlines' unionized work forces would be one of the most difficult tasks if United Airlines and US Airways got together.

US Airways, which is based in Tempe, Ariz., still runs separate pilot and flight attendant groups after it was bought in 2005 by America West. And its pilots formed their own union after leaving the Air Line Pilots Association, the union that represents United aviators.

Executives at Delta and Northwest put their deal on hold in early 2008 so their pilots could work out an agreement on combining their ranks.

Pilots at US Airways have not been involved in any talks with United, said James Ray, a spokesman for the US Airline Pilots Association.

"We'll support anything that would be good for our pilot group," he said.

Like Northwest before it, one of United's main attractions is its Pacific routes, which it bought from Pan-Am in 1985.

Both airlines have been shrinking to cope with the recession. United cut capacity 7.4 percent last year, while US Airways shrank 4.6 percent. US Airways is cutting most flying that doesn't pass through either Washington or its hubs in Charlotte, N.C., Philadelphia, or Phoenix.

US Airways lost $205 million in 2009, and revenue fell almost 14 percent to $10.46 billion. UAL lost $651 million, while revenue fell 19.1 percent to $16.34 billion.

(Copyright 2010 by The Associated Press. All Rights Reserved.)