INNOBLOG

The big news in the airline industry was last week's announcement that America West planned to buy US Airways. It's hard to see how this merger makes a great deal of sense for America West. The hope is that US Airways' route structure will allow it to expand and better compete against other discounters. But the key to getting the discount model right is keeping things simple. Layering on the complexity of a merger with an ailing airline just seems to go against that model.

What seems to have gotten less ink in this deal is the impact this will have on Southwest Airlines. My guess is that this is extremely bad news for Southwest. You see, much of Southwest's historical success could be traced to the fact that it flew routes that didn't compete against major airlines. This allowed it to grow without incurring competitive response for a long period of time. However, for Southwest to meet the growth expectations that are baked into its stock price, it needs to start hitting some more established routes.

It wasn't an accident that one of the first big airports it targeted was Philadelphia, one of US Airways' hubs. The clear bet was that it could push US Airways over the edge, and have the benefit of being the big dog in Philadelphia. Now that it looks like US Airways is going to stick around a while longer in one form or another, it raises some real questions about how Southwest is going to meet those growth expectations.