US Air sees competition key to Delta bid

By John Crawley

WASHINGTON (Reuters) - US Airways Group Inc. (LCC.N: Quote, Profile, Research, Stock Buzz) is betting antitrust regulators would look favorably on any merger proposal with Delta Air Lines Inc. DALRQ.PK because low-cost competitors have sharply boosted industry competition, US Airways President Scott Kirby said on Tuesday.

That approach departs from the strategy that helped to create US Airways last year, when America West Airlines successfully pursued a "failing firm" argument to rescue the bigger but severely distressed US Airways from bankruptcy.

"We're not relying on the ailing firm theory at all," Kirby told the Reuters Aerospace & Defense Summit in Washington, D.C. "We're relying on the merits," Kirby said of the attempt to buy another bigger airline.

US Airways has proposed a deal now worth $8.6 billion to buy Delta, which is restructuring in Chapter 11 bankruptcy and still plans to emerge next year as a stand-alone airline.

Legal and other experts say any proposed Delta merger would receive close antitrust scrutiny from the U.S. Justice Department. Congress may hold hearings if lawmakers grow concerned about the potential impact on consumers.

Competition issues, amplified by congressional concern, derailed in 2001 a planned merger of the old US Airways and United Airlines, a unit of UAL Corp. (UAUA.O: Quote, Profile, Research, Stock Buzz).

That proposal foundered on traditional questions over overlapping routes but Kirby said US Airways does not have that problem this time on nonstop routes and can address any concerns about connecting service.

Kirby also said US Airways anticipates having to sell one of the New York shuttles, if the Delta merger takes shape. But he noted that competitors would welcome the move. JetBlue Airways Corp. (JBLU.O: Quote, Profile, Research, Stock Buzz), Southwest Airlines (LUV.N: Quote, Profile, Research, Stock Buzz), and AirTran Holdings (AAI.N: Quote, Profile, Research, Stock Buzz) have said they would be interested in buying shuttle assets, like gates in New York and Washington.

US Airways believes antitrust officials will acknowledge the competitive landscape has changed since the start of the decade and will not rely on old standards to judge a Delta deal.

"When you dig down into the details, we think the antitrust case on its merits is very compelling to allow the transaction to go forward," Kirby said

Between January and August 2006, Delta and the US Airways-America West operation accounted for about 17 percent of the domestic travel market, Transportation Department figures show.

Budget competition has proliferated in the East where Delta and US Airways each have a heavy presence. Low cost airlines account for about a quarter of the industry's domestic business as measured in passengers flown, compared to about 15 percent a decade ago, according to government data.

AirTran, JetBlue, and Frontier FRNT.O also gained market share last year. And in August, Southwest became the first low-cost carrier to top all U.S. airlines in passengers flown in a single month -- 8.7 million.

William Warlick, a credit analyst with Fitch Ratings, told Reuters that low cost airlines "continue to be the source" of industry growth and "really are the ones" that dictate competition.

"Not only have they grown but they have changed the way the legacy carriers think about competition in this industry," Warlick said.