Tuesday, September 27, 2005

US Error Ways

I' m a bit of an armchair aviation analyst, so here's my unsolicited view on the US Airways/America West merger. US Airways is strong on the east coast and almost nonexistent elsewhere. America West is strong in the southwest and almost nonexistent elsewhere. Unfortunately, I think that the new airline is less than the sum of its parts. Neither airline has a significant presense in the center of the country. Without a hub or focus operation somewhere between Pittsburgh and Phoenix, it's going to be hard to cater to business travelers in a large section of the country, except on routes to their hubs in Philadelphia, Charlotte, Las Vegas, and Phoenix (and possibly, Boston, New York, Pittsburgh, and Ft. Lauderdale, current US Airways focus cities).

This leads me to believe that the new airline is going to focus on point-to-point traffic between key markets and their hubs and focus cities on the east coast and in the southwest. Cherry-picking routes that are popular with business and/or leisure travelers is a technique that all of the low-cost carriers have exploited to some extent. While there are probably still some routes that have the potential to make some good money, most of these routes are already covered by Southwest, jetBlue, AirTran, and even the other legacy carriers. This me-too approach is unlikely to pay dividends for US Airways.

In my opinion, US Airways most valuable asset is not their slots at LaGuardia or Reagan National, it's their east coast feeder system. There are numerous small to medium sized towns from Maine to Florida where US is either the only carrier to the dominant carrier. For the most part, these airports do not fit into the low-cost carrier's business models. US Airways can operate in these towns without having to compete airlines like Southwest, who will drive down prices.

Finally, there is the question of what will happen to US Airways international network. The major carriers have been focusing most of their expansion plans on international routes because they have a better chance at making money on them then in the oversaturated domestic market. US Airways hasn't announced any new international flights or destinations, so I would assume that they are planning on maintaining their current routes. Without acquiring any new equipment, their prospects for overseas expansion are very limited, which will prevent them from getting an additional boost from international expansion.

This isn't the first time US Airways has purchased a low-cost carrier based on the west coast. Back in the late 1980s, US Airways, then known as USAir, purchased California-based Pacific Southwest Airlines in the middle of an acquisition binge. Within a few years, they had dismantled almost all of their west coast network. I don't know if this merger is going to work out any better.

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