Tuesday, 3 June 2008：Despite ongoing discussions, United Airlines and US Airways have announced that a merger is not on the cards, which could bring the trend of American consolidation to an abrupt halt.
Talks between United and US Airways were propelled by the announcement of Delta Air Lines and Northwest Airlines merging to form the world’s largest carrier.
However, the second and sixth largest airlines in the United States have declined to offer precise reasoning behind the termination of merger discussions.
The US airlines have only recently emerged from a five-year decline which led to over USD$35 billion in losses, but skyrocketing fuel costs have re-ignited economic issues within the industry.
The aviation industry in America had looked to consolidation in an attempt to offset operating costs, through capacity cuts and fare increases, according to Reuters.
Executives of both airlines made the announcement separately to their employees.
The CEO of UAL Glenn Tilton told employees that “After a considered review by our board of directors, United has determined that it will not be pursuing a merger at this time due to issues that could significantly dilute benefits from a transaction.”
There have been reports that union opposition and integration costs constrained the deal, whereas other sources claim that UAL decided against the merger due to the poor international presence of US Airways.
Airline consultant Robert Mann discussed the surplus capacity present in the aviation industry, as well as the need to advance innovative revenue streams and cut costs, claiming “it just wasn’t the scale of a deal that really solves the problems.”
The potential for a new US administration to impose stronger antitrust regulations may deter carriers from attempting mergers, although the industry is facing escalating pressures and requires re-structuring.
United is not entirely disassociated with the consolidation trend, however, as there is speculation than an industry alliance with Continental Airlines is soon to be announced.
UAL, on the other hand, are working to “size the business appropriately, leverage our capacity discipline to pass on commodity costs to customers and accelerate development of new revenue sources,” according to Tilton.
US Airways Chief Executive Doug Parker has always been a promoter for consolidation, as has Tilton, and hence the possibility of future deals has not been denied.
"It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world with USD$130 a barrel oil prices," Parker said.
United has remained the most active seeker of partnership since the April announcement of the Delta/Northwest merger, but Continental did deny interest in a merger/
The possibility of the US Airways/United merger was believed to prompt further consolidation, but the two other major airlines in the region, Continental and American Airlines, have not expressed interest in mergers.
"If no one´s going to initiate and push, then it´s not going to happen," Mann said.
"It appears that Parker is pushing, but it´s like pushing rope. You have to have a partner that will pull."
