US Airways Group, Inc. (LCC), AMR Merger: Strike Ball?

What it eventually boils down to is a zero sum game in which the benefits of the transaction are already factored into U.S. Airways stock price. The combined entity would certainly be a reason to worry for its main competitors United Continental Holdings and Delta. The latest quarterly results of these airlines indicate that these market leaders need some immediate action to prop up their margins. United Continental swung from operating loss of $465 million in the fourth quarter of 2011 to a profit of $45 million in the fourth quarter of 2012. However, revenue for United Continental dropped 2.5% to $8.7 billion. Delta Air Lines reported top line growth in the quarter but its operating profit halved to $352 million as aircraft fuel and related taxes zoomed 18%. Both carries are preparing to support margins by cutting flying capacity – enabling the companies to charge more for remaining seats. However, whether the plan succeeds is still to be determined.

It is not clear as yet what strategy the new American Airlines would adopt to match its competitors’ margins but initially the company will have an advantage in undercutting its rivals as lower margins would be more than acceptable amid restructuring and integration charges.

The article US Airways, AMR Merger: Strike Ball? originally appeared on Fool.com and is written by Jacob Wolinsky.

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