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AMR CEO on US Airways Bid: 'What's in the Water in Phoenix?'


AMR (AAMRQ.PK) CEO Tom Horton seemed dismissive Thursday when he talked about an expected US Airways (LCC) bid for his airline.

"This will be their fourth try at this: twice for United (UAL), once for Delta (DAL) while they were restructuring, now American," Horton said, during a meeting with the Dallas Morning News editorial board. "I would argue that this will be every bit as successful as their prior tries."

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"I'm not sure what's in the water out there in Phoenix," Horton told the newspaper. "Maybe it's the cactus. I don't know what it is."

Describing US Airways, Horton said: "This is a small company very strategically limited, I would argue -- not any international flying, hubs of less strategic importance.

"But look, if we don't get our act together, all sorts of things become possible," he said. "It's very important that this company demonstrate progress on a credible business plan. And I think we've got a great one. I could not be more fired up about the future of American Airlines beyond the structuring."

On Wednesday, bankrupt American unveiled a restructuring plan that includes about 13,000 job cuts but also foresees 20% growth by 2017. Horton's next job is to sell the plan to employees, creditors, and eventually the bankruptcy court judge. Delta has been reported to be studying a bid for American, while US Airways has said it is studying a bid. Either or both will also have a chance during the bankruptcy process to make a case for a merger.

US Airways has had five CEOs over the past 16 years. All five have expressed interest in a merger, on the theory that US Airways needs more mass to survive long-term since it is neither a global carrier with a vast international network nor a low-fare carrier with a low-cost structure.

In fact, all five executives would likely share Horton's assessment of the airline's status: Its international flying is limited, and while its three hubs in Charlotte, Phoenix, and Philadelphia are viable, they lack the critical mass of both local passengers and connecting passengers that is available in dominant hubs like Atlanta, Chicago, Dallas, Miami, and Newark.

Today, the big three U.S. airlines are successfully playing the hands they were dealt in the first half of the 20th century, when they were created or established a presence in cities that grew into dominant hubs. US Airways was created in 1939 to serve the Pittsburgh area.

In its story, the Dallas Morning News noted that international routes accounted for 27% of US Airways 2011 capacity, including regional capacity, while accounting for 41% of capacity at American, 47% at Delta, and 48% at United Continental.

US Airways does not have any hubs big enough or strategically placed enough to have enabled trans-Pacific flying with its current fleet or extensive Latin American flying, so the bulk of its international flying involves trans-Atlantic routes from Philadelphia. Before the United/Continental merger, US Airways had more flights between the East Coast and Europe than United did.

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