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United/US Air: Something monopolistic in the air?

May 24, 2000
Web posted at: 11:29 AM EDT (1529 GMT)

By Frank Pellegrini

(TIME.com) -- That's one big airline. United, already the world's largest air carrier, moved to plug its one geographical hole late Tuesday by forking over a total of $14 billion for Northeast-centric US Airways, formerly US Air, formerly a combination of Allegheny Air, Piedmont Air, Pacific Southwest and Mohawk Airlines... The new mega-carrier will boast revenues of $26.5 billion from multiple hubs on both coasts and 6,500 daily flights, nearly twice as many as its nearest competitor, American.

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Like any merger, it's an economy of scale -- more northeastern flights feeding seamlessly into those lucrative long-distance flights means more one-stop United shopping for flyers, which means more money. Which is why United was willing to pay $60 a share -- in cash, not stock -- for an airline lucky to be at $25, a generous premium even in the mega-merger game.

The merger could also be a lucky break for USAirways' frequent flyers, says TIME Washington correspondent Sally Donnelly. "United generally ranks near the top in customer service surveys, and USAirways is continuously plagued by performance complaints and customer satisfaction troubles," Donnelly says. "Now people watching the merger talks are wondering if such a mammoth airline could maintain any trappings of a service industry -- or if it would quickly deteriorate into the customer service equivalent of high-altitude subway trains."

And what will the merger do to the price of fares? The idea of a bigger, broader United having so much control over so many hubs is certain to flag antitrust regulators, as well as impelling other airlines to consider similar combinations. Such a process would, of course, lead to more and more control over the hub-and-spoke system by fewer and fewer airlines.

United tried to head off those worries by putting some provisions in the deal -- promising a fare freeze (except in case of upticks in inflation or gas prices, of course) for two years after the merger is in effect and vowing to sell most of US Airways' slots at Washington's Reagan National Airport to Black Entertainment Television mogul Robert T. Johnson and his new airline, DC Air. That may not be enough.

Look for American's big shots and lobbyists to lead the fight, arguing that two years will go by awfully fast and that the new United has too much brawn in northeast ports to possibly resist stomping rivals and hiking fares. American ought to know -- regulators have already sued them for similar misdeeds -- and Joel Klein and the gang are expected to look long and hard before letting this deal fly.

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