Too Many Carriers in the Sky?

McLEAN, Va. – Bankrupt US Airways may have saved itself by agreeing to merge with America West Airlines (AWA), but it does little to address what many in the industry believe is a fundamental problem: too many carriers offering too many flights.

When US Airways Group Inc. (search) made its second trip into bankruptcy in September, some competitors hoped and many experts believed the airline would never emerge, allowing competitors to pick the bones from the carcass of the nation's seventh largest airline.

Southwest Airlines Inc. (LUV) , for instance, made no secret of its desire for some of US Airways' gates at its Philadelphia hub, where the two airlines compete directly. Other airlines eyed US Airways' slots at airports in New York, Washington and Boston and some of its profitable Caribbean routes, but nobody wanted to acquire the dysfunctional airline as a whole.

Now, even though many in the industry believe the collapse of a carrier like US Airways would be the best remedy for excess capacity, the planned merger with America West calls for just a slight trim of the US Airways fleet.

"The survival of US Airways could be detrimental to the industry as a whole" because it props up a carrier that just months ago had been on the brink of total collapse, said business professor Anthony Sabino of St. John's University in New York .

"If I'm the CEO of Delta ... I would have loved to see the elimination of a carrier like US Airways," said Sabino, an industry expert.

The two airlines have a combined fleet of about 400 jets, and the merger agreement calls for returning 59 jets, or about 15 percent of the fleet, to their lessor. Most of those 59 jets would have been trimmed from the US Airways fleet anyway as part of its bankruptcy restructuring, US Airways chief executive Bruce Lakefield said Thursday.

While eliminating 15 percent of the combined fleet of the nation's seventh and eighth largest carriers may sound like a drop in the bucket, industry executives seem appreciative of any capacity reduction.

Southwest chief executive Gary Kelly, speaking at the airline's annual meeting this week before the merger was announced, had said that shedding 50 planes in a US Airways-America West merger could be a positive development and the start of an industrywide consolidation.

Especially in the eastern United States, where US Airways is the nation's No. 2 carrier, competition is fierce and, some say, artificially maintained.

Rick DeLisi, spokesman for Flyi Inc. (search) , whose new low-fare Independence Air brand competes with US Airways on many of its East Coast routes, said the company always expected it would have to compete with both US Airways and United.

"But we did not expect that they would be able to charge below their own costs, almost a year out from our launch," DeLisi said. "We did expect some price matching, but when you consider that both of our competitors are operating under bankruptcy protection, and that they continue to charge well below their own costs, that was something that was not imagined."

It's not necessarily clear how other airlines might respond to the merger, if at all. Sabino said the merger could simply result in the larger US Airways dragging down a relatively healthy America West Holdings Corp.

Lowell Peterson, a New York-based bankruptcy lawyer with Meyer, Suozzi, English and Klein who has expertise in airline issues, agreed that the merger does little to address issues of overcapacity, but allows the two airlines to remedy a key structural issue: an overreliance on an outdated hub-and-spoke network.

Even though both America West and US Airways have hub-and-spoke networks — US Airways with hubs in Philadelphia and Charlotte, and America west in Phoenix and Las Vegas — the merger gives the two airlines more gates and a more flexible network that shifts more toward point-to-point flying, efforts US Airways had already undertaken as part of its internal restructuring by downscaling its hub in Pittsburgh.

"US Airways' competitors are not going to be able to respond to that quickly," Peterson said. "It might create some competitive pressures on legacy carriers."

Peterson said it's possible that other carriers will consider consolidations or mergers in response to the US Airways-America West deal.

But many of the larger legacy carriers that would most benefit from such a move have been losing billions of dollars and lack the finances to pull off an acquisition. And large mergers could face regulatory scrutiny. It was the Justice Department's 2001 rejection of a planned merger between UAL Corp.'s (UAL) United and US Airways that marked the start of the two airlines' woes.