BWI loses in air deal

United plans to end service to 8 cities if merger completed

Clarification issued

MetroJet operation would go in buyout of US Airways

United plans end to MetroJet flights from BWI

May 26, 2000|By Meredith Cohn | Meredith Cohn,STAFF WRITER

United Airlines said yesterday that it will eliminate non-stop service to eight cities from Baltimore-Washington International Airport, including popular Florida destinations, after its proposed merger with US Airways.

In addition, United said it would add a new route to Seattle and an extra flight each to Chicago, San Francisco and Los Angeles.

The airline had said Wednesday that US Airways and MetroJet service at BWI would not be affected. Yesterday, a spokesman said that was an error.

If the merger is completed, the carrier plans to end nonstop service to Cleveland; New Orleans; Providence, R.I.; Manchester, N.H.; and four Florida destinations - Miami, Ft. Lauderdale, Jacksonville and West Palm Beach.

All of the destinations slated to be eliminated are serviced by MetroJet, which US Airways had created in 1998 to compete with Southwest Airlines, a low-cost provider that's now BWI's dominant carrier. The planned pullback could be an indication that United would back off that strategy.

All but one of the designated cities are served from Baltimore by other airlines, United said. And the carrier plans to provide connecting service to all of the cities.

Under United's plan, nonstop or one-stop service will be provided to 207 U.S. cities and 30 international destinations.

No other changes are planned in the short term. All United flights from BWI should remain the same.

US Airways began MetroJet after winning concessions from its pilots to fly a certain number of planes at lower wages and adjust its work rules. Because its costs were far higher than Southwest's, it had suffered heavy losses by matching the Dallas-based airline's fares to Providence, Cleveland and other cities.

But even with the pilots' concessions, MetroJet's costs remained higher than Southwest's. US Airways had hoped to close the gap by attracting more high-fare business travelers, by freeing more seats on its regular flights. It also planned to MetroJet, where they would pay a higher discount fare by offering seat assignments and a larger connecting network.

Meanwhile, the fallout from the proposed United-US Airways deal continued yesterday.

US Airways Group Inc. shares were down about 6 percent, as excitement over the proposed $60 a share acquisition of the No. 6 U.S. airline by UAL Corp. gave way to concerns about the hurdles the deal must overcome.

"Today, on the margin, people are starting to say maybe there is regulatory risk," James Higgins, airline industry analyst at Donaldson, Lufkin & Jenrette, said.

Shares of Arlington, Va.-based US Airways closed down $4 at $45 and shares of Chicago-based UAL, parent company of United, the world's largest carrier, fell 68.75 cents to $52.50.

Also yesterday, analysts said that American Airlines, facing the possiblity of being left far behind industry leader United Airlines, will be forced to consider buying another carrier to compete with the combined United-US Airways.

Officials at American, the No. 2 U.S. carrier, remained mum yesterday about United's plans to buy US Airways for $11.6 billion. But some analysts say a likely target for American is Northwest Airlines, which owns a controlling interest of the voting stock in Continental Airlines.

US Airways ranks 10th in the world and sixth in the nation. Northwest is fifth in the world and No. 4 in the United States, and Continental is sixth worldwide and fifth in the U.S.

Before American acts, analysts say, it will try to handicap United's chances for gaining antitrust clearance for a US Airways takeover.

"I think the chances are a little better than 50-50 that this [United-US Airways merger] will go through, and if it does, American will have to do something," said Ray Neidl, an analyst with ING Barings.

Neidl said American would be unlikely to make a counteroffer US Airways, given that United is bidding $60 a share, more than double US Airways' closing stock price on the day before the deal was announced.

While some other analysts were not as quick to dismiss a counteroffer, they said United's 130 percent premium was a pre-emptive strike at American, which considered bidding for US Airways five years ago.

American, a part of AMR Corp., also could bid for US Airways routes that the Justice Department might require United to sell.

But the likeliest option, Neidl said, would be American buying another carrier to keep pace with - or even leapfrog over - United.

"The most logical [target], with the route system it has, is Northwest," Neidl said. "American is being squeezed out of Chicago by United, and Northwest would give them two more hubs in the Midwest," in Detroit and Minneapolis.

Northwest's service to Asia, where American is weak, could also complement American's strength serving Latin America and Europe, Neidl said.

Brian Harris, an analyst with Salomon Smith Barney, downgraded American's stock after United's announcement, saying American had the most to lose from the merger and faces growing competition in Chicago and for high-fare business travelers in Dallas.

Harris said the United deal, if unanswered, would cause American to hemorrhage revenue in Chicago, Boston and New York. He said futher consolidatons -- American and Northwest; and No. 3 Delta Air Lines and Continental -- were logial responses to United's bid for US Airways.

Wire services contributed to this article.

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