Will A US Airways-United Airlines Merger Work?
Shares of US Airways Group (LLC) surged 10% to $7.55 in trading on news of a possible merger with United Airlines (UAL). United Airline shares rose 6.75% to $20.23. Talks of a possible merger between the two airline giants is nothing new. US Air and United have discussed merging twice before and couldn't come to terms. The proposed merger would have to overcome government antitrust legislation and opposition from labor unions.
If you are thinking of investing in shares of any airline company, you should tread lightly. The airline industry is brutal and just about every company struggles for survival. Very few companies are able to make a profit. Southwest (LUV) and JetBlue (JBLU) are the exceptions to the rule. The industry as a whole has lost $60 billion dollars over the past decade despite continued consolidation. The airline industry is plagued by intense competition and little pricing power.
While a merger of US Air and United Airlines would have some positive effects such as cost savings and synergies, there is no guarantee that the new company would be a success.
