Gene J. Puskar  /  AP
Even with major cost cutting that has come largely through job cuts and labor concessions, Arlington, Va.-based US Airways continues to struggle and has acknowledged it does not expect to turn a substantial profit until at least 2008.
updated 4/29/2005 12:58:02 PM ET 2005-04-29T16:58:02

Whatever happens to US Airways Group Inc. in the coming months matters — for its employees, shareholders and customers, and the rest of the airline industry as well.

With much of the airline business plagued by expensive fuel, low fares and excess capacity, US Airways' competitors are closely watching to see if the struggling carrier emerges from bankruptcy as a healthier entity, merges with someone else or eventually goes out of business.

A liquidation of US Airways, the nation's seventh-largest airline by traffic, would no doubt receive a collective cheer from other carriers that are having difficulties operating in this tough business climate.

But the same won't likely hold true should all or parts of US Airways stay alive.

It's just the latest chapter in what has been a turbulent ride for US Airways, whose Chapter 11 bankruptcy filing in September was the second in as many years.

Even with major cost cutting that has come largely through job cuts and labor concessions, the Arlington, Va.-based company continues to struggle and has acknowledged it does not expect to turn a substantial profit until at least 2008.

The airline industry overall has had a terrible run in recent years. After booming in the 1990s — when fuel prices were reasonable and planes were full of high-paying passengers — business slumped after the 2001 terrorist attacks and many of the airlines have never been able to regain their profitable momentum.

The fate of US Airways could be decided in the coming months. At least that is what is being anticipated as a result of the carrier's talks with America West Holding Co., the nation's eighth-largest carrier, to unite their operations. Also, an end of April deadline looms for US Airways to submit its reorganization plan with the U.S. Bankruptcy Court.

"We are now seeing the appearance of increasing desperate measures on the part of US Airways," said Robert W. Mann, owner of an airline consulting firm based in Port Washington, N.Y., who added that something has to happen for US Airways to "avoid getting the plug pulled on it."

That may just be what its competitors want. While Mann estimates that US Airways only holds about 5 percent of U.S. airline business' system capacity, a US Airways shutdown could give big relief to its rivals, especially those operating in East Coast markets like Charlotte, N.C., Philadelphia and Pittsburgh where US Airways has a stronghold.

A US Airways liquidation could also be particularly helpful to United Airlines by giving it a better chance of securing financing so it could emerge from bankruptcy protection, which it has been operating under since December 2002, Mann said.

And by removing US Airways from the competitive landscape, that would ease up some pricing pressures across the board. "The fewer players you have, the more likely that you will see more pricing stability and fewer price cuts," said Philip A. Baggaley, managing director at Standard & Poor's credit ratings services.

Views differ, however, on the potential industry effect should US Airways sell off its parts or team up with another carrier. It does hold some highly coveted airport facilities in some large markets, which could be attractive to competitors.

While US Airways and America West have confirmed that they are in talks, no specifics of the potential deal have been released. Such a marriage could potentially create a stronger, bigger airline that has presence nationwide, with US Airways' East Coast routes linked with America West's network in the West. But the combined company could also scale back capacity on some routes where the airlines' businesses overlap.

No wonder that the rest of the business is watching to see the outcome of this potential deal as well as others that might come along.

Gerard Arpey, chairman and CEO of American Airlines' parent AMR Corp., weighed the good and bad that could come from industry consolidation.

"If it takes capacity out of the industry, I think that would improve the revenue environment and improve industry conditions," he said during a conference call after the American Airlines reported earnings last week. But he added that "if on the other hand it preserves capacity that might otherwise go away, that would be a bad development."

It makes sense why US Airways is on its competitors' minds. Its fate has to be.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.95%
$30K home equity loan FICO 5.19%
$75K home equity loan FICO 4.58%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.40%
13.40%
Cash Back Cards 17.92%
17.91%
Rewards Cards 17.12%
17.11%
Source: Bankrate.com