American Airlines and United Airlines planes in Terminal A of Newark Liberty International Airport (EWR) on Thursday, January 12, 2023 in Newark, New Jersey, USA.
Aristide Economopoulos | Bloomberg | Getty Images
united airlines CEO Scott Kirby has reportedly hinted at the possibility of partnering with a rival. american airlines The proposal, made to the Trump administration earlier this year, would create the world’s largest airline if implemented.
The Trump administration appears to be more open to mega-deals than its predecessor, but such mergers are unlikely to occur between the top four airlines (these two delta airlines and Southwest Airlines) It already accounts for approximately 80% of domestic production capacity. According to aviation data company OAG, the combined domestic market share of the two companies will be about 40%.
“This would be the largest in history, and I don’t see the slightest chance that the courts would approve that,” said George Hay, a law professor at Cornell University.
American and United declined to comment on the merger talks reported by Bloomberg on Monday. The White House did not immediately comment on the reported discussion.
U.S. stocks rose 8% on Tuesday, but are still down more than 20% since the beginning of the year. United’s stock rose more than 2%, narrowing its loss this year to about 13%.
Daniel McKenzie, an aviation analyst at Seaport Research Partners, said the stock price movement was “more about short covering than the market giving legitimacy to the proposed merger.” He added that the agreement “was carefully considered until the public outcry was deafening, but it will be null and void on arrival.”
Samuel Engel, senior vice president at consulting firm ICF, said the Justice Department “if it’s not going to object to that, what is it going to object to? It’s very hard to imagine a transaction of that size and concentration.”
He said consolidation could give airlines better control over capacity, which could result in higher fares, which is typically an important consideration in antitrust investigations.
Tom Fitzgerald, an airline analyst at TD Cowen, said the merger between American Airlines and United Airlines would likely require significant divestitures on routes where only one or two airlines would fly the route after the two companies combined, and said 289 routes currently fit that criteria.
However, the Trump administration has expressed a favorable attitude towards industry mergers.
“Is there room for consolidation in the airline industry? Yes, I think there is,” Transportation Secretary Sean Duffy told CNBC’s Phil LeBeau last week about industry consolidation. President Donald Trump “loves to see big deals happen,” Duffy said, adding that the partnership “needs to be revisited.”
The deal comes as the airline industry faces soaring jet fuel costs, its biggest expense after payroll, that eat into profits.
Airlines are cutting capacity plans to cut costs, and airfares could rise further.
“Throughout my career, I’ve seen many periods of turmoil in our industry, and time and time again, high fuel prices have been the most powerful catalyst for change, separating winners and forcing weaker players to streamline, consolidate, or weed out,” Delta CEO Ed Bastian said on an earnings call last week. “Delta is steering from a position of advantage.”
Delta completed its merger with Northwest Airlines in 2008, giving it an advantage over other airlines that have completed mergers since then. The current American Airlines was formed in 2013 through a merger with US Airways. Several current airline executives worked at US Airways, including Mr. Kirby of United Airlines and American Airlines CEO Robert Isom.
Mr. Kirby, who was fired by American Airlines in 2016, is at odds with his former employer, including in major markets such as Chicago.
Delta Air Lines and United Airlines already control most of the industry’s profits in the United States.
American Airlines has been lagging behind both airlines as it has struggled to attract the high-spending customers that have been driving the major airlines’ profits in recent years. American Airlines had net income of $111 million and revenue of $54.6 billion last year, while United Airlines reported net income of $3.35 billion and revenue of $59 billion, according to company filings.
The Biden administration challenged and won a partnership with two major airlines. Federal judge terminates partnership with American Airlines jet blue airlines In the Northeast in 2023 and in early 2024, a court ruled against JetBlue’s planned acquisition of Spirit Airlines, which is now in bankruptcy for the second time.
JetBlue and United have formed a partnership that allows customers to book on each other’s airlines, but they have not been able to coordinate schedules under the failed U.S. deal. Mr. Kirby has expressed reluctance to move forward with the deal.
“I love our partnership with JetBlue,” Kirby said in Boston last month. “I have high praise for their team. They have the right DNA and culture, but… we’ve had great growth. I feel really good about our standalone.”
“Mergers are large, difficult and complex,” he added.
