If United Airlines parent UAL and US Airways Group merged, the pairing could result in massive cost savings for the new carrier as well as higher fares for the troubled industry.
But, in order for a merged airline to win those benefits through consolidation, the two carriers -- reported to be deep in merger talks -- would have to take on the painful tasks of closing hubs, grounding planes and slashing jobs where United and US Airway overlap.
"There's definitely the potential for it," said Stuart Klaskin at KKC Aviation Consulting. "What I question is whether those two airlines will have the political will to actually do that."
Industry experts say the prime benefits of consolidation come from reductions in capacity -- the number of seats for sale. Less capacity lets carriers charge more for tickets.
In the last two years, major carriers have removed capacity from less profitable domestic routes and bolstered lucrative international routes. The strategy has led to higher ticket prices and stronger airlines.
Fare increases, however, have not kept pace with rising fuel costs, which are directly linked to the price of oil. As a result, airlines posted big losses in the first quarter, and pressure is mounting on carriers to merge.
"Absent the removal of meaningful capacity reductions from the domestic airline industry, you don't get substantial consolidation benefits," Klaskin said. "That's the ugly, sad truth."
Klaskin said a United/US Airways merger could lead to a 25 percent reduction in their combined capacity. But he predicted capacity cuts closer to 10 percent.
Sources said last week that United and US Airways could reach a merger deal soon. An agreement would come on the heels of one announced last month by Delta Air Lines and Northwest Airlines, which are planning to form the world's largest airline, to be known by Delta's name.
The Delta deal features cost savings and revenue improvements amounting to about USD$1 billion a year. But the proposal currently offers no capacity reductions as the two airlines' operations have little overlap.
While Delta and Northwest may be depriving themselves of hefty cost savings, their pairing may have a relatively easy time winning approval from the US Justice Department, unions and travelers.
United and US Airways, on the other hand, could face higher antitrust hurdles resulting from the strong presence of both airlines on the East Coast, especially in Washington DC. They also would risk customer backlash if they cut service or raised fares in popular markets.
"The consumer won't like it. But the fact of the matter is the consumer won't like all these airlines going out of business either," said airline consultant Robert Mann.
Since March, four small airlines -- Aloha Airlines, Champion Air, ATA Airlines and Skybus Airlines -- have shut down amid increasingly hostile industry conditions.
Low-cost carrier Frontier Airlines, meanwhile, filed for bankruptcy protection but said it would continue flying during its reorganization.
Experts say the industry desperately needs consolidation, but the jury is still out on what mergers make the most sense.
Although UAL Chief Executive Glenn Tilton and US Airways CEO Doug Parker have long advocated consolidation, their airlines may be particularly unenticing merger partners.
United, which completed a massive bankruptcy reorganization in 2006, suffered the largest first-quarter loss of the major airlines this year. The carrier still faces ill will from its labor groups, which made steep sacrifices to save the carrier.
US Airways, itself the product of a 2005 merger of America West Airlines and the former US Airways, still operates with two separate labor forces. The integration of a third labor force would present further complications, although experts generally believe labor issues would not torpedo a merger with United.
"It's not the most attractive pairing, but any kind of consolidation is good for the industry," said Jim Corridore, analyst at Standard & Poors.
