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US Airways, flying solo, may struggle

With no money-saving merger on the horizon, US Airways customers likely will see fewer flights and even more fees as high fuel costs continue to strain the carrier's finances.

After filing for bankruptcy protection twice this decade, Charlotte's dominant carrier should have enough cash to avoid the same fate this year, airline experts say.

But with the industry enduring its worst economic stress since 9-11 -- when four major carriers sought bankruptcy protection between 2002 and 2005 -- analysts and academics say it's likely that not all of the airlines now flying will survive as separate carriers.

US Airways is one of the smaller major airlines and has fewer international flights, which usually are big moneymakers. Those factors and others could provide more pressure for US Airways to merge, experts say.

"US Airways is quite big, but it's not big enough," said Ilker Baybars, professor of operations management and deputy dean of the business school at Carnegie Mellon University in Pittsburgh.

One potential partner was United Airlines. But on Friday both carriers, without mentioning the other by name, said in notes to employees that they won't be part of a merger this year.

US Airways and United were pegged as partners after Delta Air Lines and Northwest Airlines agreed in April to merge and Continental Airlines rebuffed a link-up with United. Continental and United have since discussed forming an alliance.

"After much work and many conversations with other airlines, we have come to the conclusion that consolidation involving US Airways will not occur at this time," Doug Parker, the airline's chairman and chief executive, wrote in his note.

"This is not to say that something won't occur in the future," Parker added. " ... Rather it is simply unlikely that anything will happen in 2008."

As for US Airways flying solo amid surging fuel costs -- it now pays more than $4 a gallon, double last year's price -- spokesman Phil Gee said this week that the carrier has taken several measures to save money.

"There is no silver bullet for this situation," Gee said. " ... We will do all the necessary things to make sure US Airways is around for a long time."

Fewer flights, frequent fees

Even before the United talks ended, US Airways began pinching pennies to help pay for fuel.The Tempe, Ariz.-based airline announced a few months ago that it would cut 2 to 4 percent of its flights later this year, and last week said it wants to push back the start of its China route from next March to 2010.

Then there are those fees and cutbacks. Most passengers now must pay extra to check a second bag or reserve an aisle or window seat at the front of a plane, and they don't get free pretzels or the previous minimum of 500 frequent-flier miles for short flights.

That "a la carte pricing" has become popular, but it won't offset fuel costs and only irritates most passengers, said George Hoffer, an economics professor at Virginia Commonwealth University in Richmond, who has studied the airline industry.

"Some of these things are just crazy ... almost punitive," Hoffer said. "This nickel-and-diming cannot raise enough money to get at the basic problem."

Instead, as fuel continues to drain money from budgets, US Airways and other airlines may have to raise fares significantly and cut flights that aren't always full, Hoffer said.

"You pull the plug on the marginal customer and the marginal planes," he said. "You make airline travel as expensive and rare as it was 50 years ago."

Enough cash for the year

That sounds drastic, but Hoffer said he believes it's better than a merger with United, which wouldn't have delivered cost savings for at least a few years -- too long with the current cost of fuel.

"There's no plane in the air that can make money in today's prices," he said. "Until things work out, just stay where you are."

But Baybars said US Airways isn't built for the long haul. Its percentage of international flights compared with other U.S. carriers -- about 20 percent of overall flights vs. 35 to 40 percent -- could be further threatened by the recent relaxing of rules that limited European carriers' U.S. access.

US Airways, like other major airlines, has cash in reserve. The cushion has shrunk from $3.5 billion last summer to about $2 billion this spring, but it's enough to get the airline through this year, said Harlan Platt, a finance professor at the business school of Northeastern University in Boston, who follows the industry.

United is in a similar situation, Platt said, which could explain why the two airlines held off on a merger. "The sense of urgency is not there," he said.

"This is not the 39-year-old who says I'm going to marry the next person I go out with," Platt said. "These companies are now about 30. They know the clock is ticking, but they've got time."

US Airways has said it is studying the $15 fee for checking a first bag that American Airlines announced last week. "We have embraced an a la carte pricing strategy that allows us to provide unbundled services to the customers who want to pay for them while keeping tickets competitively priced," Gee said.

In addition to adding fees and reducing seats and flights, US Airways has an aggressive fuel conservation program, Gee said, and improved on-time performance has saved it more money.

Those moves, Platt said, are "all on the margins" and don't affect most passengers.

No matter what airlines do on their own, most analysts expect economic pressures to eventually weed out at least one or two major carriers.

"There will be industry consolidation one way or another," airline analyst Ray Neidl of Calyon Securities wrote in a research note this week.

"Either the carriers will be allowed to merge in a logical manner to make the industry less fragmented," he wrote, "or eventually certain airlines will fail and possibly liquidate, disrupting the careers of employees, disrupting service and destroying investment capital in the process."

Stock price tumbling

US Airways shares closed at $3.96 Friday, down 36 cents, or 8.3 percent. The stock price has steadily dropped over the past year, from above $35 in late May 2007 to less than $20 in early December to about $12 in early March.

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