United CEO Rules Out Buying American Airlines And JetBlue — But A JetBlue Bankruptcy Would Change The Math

United Airlines CEO Scott Kirby spoke at the Bernstein 42nd Annual Strategic Decisions Conference on Wednesday. He was asked about United buying another airline and he suggested it was unlucky – but appeared to leave a path open.

Kirby said that only a big transaction makes sense, and requires a willing partner. That meant American Airlines. And he suggests that without a willing American, the door is shut on United doing any mergers:

I don’t think that United, at least, is going to participate in any consolidation for any time I can see in the foreseeable future.

Asked about whether putting the American deal out there was a way to make it “easier to do a smaller deal” (like JetBlue) Kirby responded “It’s just idiotic.” And Kirby is right. Kirby pitched an American Airlines merger to the President of the United States. As I’ve suggested, you don’t pitch the President on something you aren’t actually trying to make happen.

Asked about pursuing a JetBlue merger, it seems clear that United isn’t going to buy them outside of a prepackaged bankruptcy. Last month JetBlue founder Dave Neeleman said he didn’t believe United would buy them because of their $9 billion debt and suggested that the carrier could enter bankruptcy this year (for their part, JetBlue says that’s not something they are considering – this year).

Kirby explained that JetBlue loses to much money, and the improvements that would be necessary to turn them profitable just aren’t possible:

I have immense respect for Joanna and her team and what they’re trying to do, and I wish them luck. By the way, we’re going to try to help them be successful.

I already talked about discipline. I’ve been disciplined enough to close three hubs. The last thing I’m going to do is buy a route network that loses money.

I think for us, I look at that, you can do the math too. We got to somehow think we can improve JetBlue’s margin by 25 points to make it work. That seems mathematically close to impossible to me. I never understood why everyone thought we were going to do it. I never said it, never hinted at it. I never understood why everyone thought we were going to do it. It just seems mathematically not doable and I’m pretty good at math. I never understood it.

The prediction, though, wasn’t a merger per se it was a deal with JetBlue (which happened) and a recognition that Kirby would value (1) New York JFK slots [he’s getting some from JetBlu ebut would surely want more] and (2) a Florida hub (JetBlue has Fort Lauderdale).

And the idea that “I never said it, never hinted at it. I never understood why everyone thought we were going to do it” is pretty weird since last year Kirby was asked whether there would be more airline consolidation and whether United would play a role, Kirby said:

• “JetBlue is the obvious candidate.”

• JetBlue was “the obvious candidate,” said “It’s possible,” noted United would like JFK presence, and then said JetBlue was “the only one” he thought was potentially in play. He also said the decision was in JetBlue’s court.

So Kirby can scoff that the internet just made up the idea that United could buy JetBlue, but Kirby himself has spoken publicly about it. The challenges, though, are real.

JetBlue has significant debt. They lose money now and integrating their workforce into United would entail paying them higher wages (making their pre-existing operation even more money-losing). And that’s before all of the standard expense and distraction involved in executing a merger, and mergers often don’t pay off as well as hoped.

It seems, then, that the only way a JetBlue acquisition makes sense is with lower costs at the airline, and that would only come with a pre-packaged bankruptcy – a filing the airline’s founder suggested could be just around the corner.