Former United Airlines CEO Oscar Munoz drops the word on this week’s Airlines Confidential that he’s been talking to outside investors about buying U.S. airlines, and he thinks a deal could be coming soon after this month’s earnings releases are all out.
On last week’s episode, former Wall Street Journal airlines reporter Scott McCartney suggested that depressed U.S. airline valuations could attract private equity or activist investors, specifically calling out Alaska Airlines, American, and JetBlue as potential targets. I’m skeptical of JetBlue given their debt loads, for the reasons current United CEO Scott Kirby outlined.
McCartney pointed out,
- “The restaurant chain Texas Roadhouse is worth more than American Airlines right now.”
- “Delta isn’t five times the size of American … but Delta is worth five times more than American in the stock market.”
Of course, airline stocks have low multiples because they aren’t expected to generate rising rates of return. They’re capital intensive, heavily unionzed, highly regulated businesses with limited growth potential.
And Delta has a much higher market cap because it makes money and American Airlines largely does not, and the market expects that status quo to continue. Investing in airlines is tough for any long period of time. Making money in the sector usually involves short-term plays.
In this week’s episode, Munoz revealed that he helped Southwest Airlines management frame its reponse to activist investor Elliott.
You really can’t spreadsheet your way to a great airline. And again, the Elliott conversation at Southwest—and I was tangentially involved with management there on how to frame this—I wrote a big article about this… Operational excellence has to become a financial strategy as well.
Interestingly, Munoz’s August 2024 Fortune essay defending Bob Jordan and criticizing Elliott’s approach identified him simply as United’s former CEO. It did not disclose that he was working with Southwest management. The airline subsequently quoted that essay in proxy materials, although the filing said permission to use the quoted endorsements was neither sought nor obtained.
Now, Munoz flags that investor “activity” is occurring and predicts more “noise.”
There’s been a lot of activity—I’ll just say that—and there’s conversations… sophisticated investors who largely ignored airlines, for all the obvious reasons, are suddenly paying attention.
…I suspect you might see some additional noise here probably fairly soon, especially after these earnings are announced… There is a lot of money out there still looking for outlets, and this could be one.
So the former CEO of United, who is talking with investors, says we’ll see outside money re-enter the industry soon. That could be a significant stake in a carrier, like with what happened at Southwest. It might be a take-private offer of an airline that’s seen as ‘cheap’ (like American). Or it could be something less interesting.
The problem is that airline turnarounds generally have long time horizons – given capital spending and governments involved. There aren’t really other Southwests out there where you can load up an investment grade balance sheet with debt to fund share buybacks, or make significant tweaks to the business model and roll out layoffs for a short-term goose to the stock.
Berkshire Hathaway had to wait until Warren Buffett retired before coming back into the airline industry in a big way for a reason. Buffet learned multiple times during his career that airlines aren’t investable for the long term.
He famously quoted Richard Branson in his 1996 investor letter that the easiest way to become a millionaire quickly is to “Start as a billionaire and then buy an airline.” Indeed, in 2007, reflecting on how bad an investment airlines are, Buffet wrote that a “farsighted capitalist” should have done humanity a favor by shooting Orville Wright down at Kitty Hawk.
We know of course that JetBlue has engaged with outside advisors to explore deals with other airlines. United’s Scott Kirby talked to the President about buying American Airlines and has admitted talking with airlines about buying assets. And American’s CEO has spoken with Alaska about making a deal.
It’s time for the art of the deal!
Ah, yes, “private equity or activist investors”… this has gone *so well* for SWA customers… not.
4 American flights. 4 mechanical delays. They can’t do the basic things right. Never again flying them.
So where’s the beef? What should we buy to be ahead of the game? Low valuation stocks are often low valuation for a reason. @ 1990. so what are you buying?
this would be really tragic for Alaska, which would have been profitable very early into a massive identity shift if not for fuel headwinds. they’re struggling to extract as much revenue as UA/DL/even AA from elevated fares. but they seem very pleased with early long-haul performance + credit card revenue and are poised to scale fast next year. it would be a terrible time for someone to swoop in and try to squeeze the value out of it.
JetBlue would maybe benefit from having a scapegoat to make the hard calls it won’t, like Southwest did. the growth at LGA and JetForward initiatives like domestic first are promising, but they’re hurtling towards $(1B) this year. maybe the death of NK will help staunch the bleeding, especially at FLL, but it’s just not clear what their differentiator is right now
@jack the ladd — Oh, I’m no gambler. IRL, my portfolio is as risk-averse as one can get.
You may not see mergers but you might see private equity/venture capital try to “recondition” an airline. That generally has not worked out so well. There is only so much you can do with an airline without running into obstacles such as FAA, Unions, ATC restrictions.
With the big 4 plus AS having now reported 2Q2026 financials and have provided guidance for the rest of the year, it is clear that there is a major division between the top and the rest of the industry.
DL is clearly in a league of its own and will likely report over 60% of industry profits for 2026 up from over 50% last year. As much as its fans want to believe otherwise, UA is middle of the pack between DL and AA in financial performance while AA continues to just skim above the water.
WN is SLOWLY turning things around but Gary is right that they are not anywhere close to where they used to be.
AS is losing money and probably cannot turn it around which means they could well be the biggest target for investor money.
1990 is right that outside investors never understand the airline industry and will strip away anything of value – including operational performance – in order to extract the value that mgmt has been unable to access.
It is fuel right now but the airline industry as a whole has been a financial failure since deregulation. Consumers are the winners w/ lower fares than possible under deregulation. It is not a surprise that DL supported deregulation while AA and UA were adamantly against it. AS has continued to try to push beyond its PNW strengths and has stumbled every time. B6 has proven that it cannot break the legacy grip on the world’s most valuable travel market.
WN is trying to scratch its way back to relevance but may never return to its position as the industry’s financial leader.
It is not a surprise that outsiders will come in to try to extract value from an industry that has not and is not working.
@Tim Dunn — These vultures aren’t circling because of juicy margins or market fundamentals; they see limping assets with real meat still on the bones (specifically loyalty programs, gate real estate, and paid-off aircraft). They’ll strip those valuables dry for a quick cash-out, leave a hollow carcass, and expect a taxpayer-funded bailout when the debt load inevitably collapses.
@Tim “AS probably can’t turn it around” based on what? They were profitable in June, they’ve had years of profitability leading up to the expansion, and they’ve got a very strong balance sheet and plenty of unencumbered assets. I know Delta and its fans have been willing Alaska’s collapse into existence since 2014, but it’s been a decade of wishful thinking. If Alaska paid what Delta does for fuel it would have been wildly profitable this quarter. It’s way too early to judge the post-Hawaiian strategy
easy money,
2026 will be another year that AS barely makes money if they make any at all.
Their balance sheet is already weaker than it was 2 years ago before they got involved w/ HA which was a money-losing airline.
The same thing happened with Virgin America; AS might or might not end up scaling back most of what it acquired from Hawaiian but ALK is not off to a great start in making its HA acquisition a success. And AS’ best days were when it was content to be a PNW focused airline.
No, DL isn’t wishing AS out of existence.
ANY other airline could have figured out that owning a refinery made sense in major fuel spikes – but AS faces a structural disadvantage with fuel just by being on the west coast; UA does too but they enough operations elsewhere in the US to partially offset the west coast effects.
and 1990
you know the airline that might look the most attractive to PE vultures? United. They have tons of cash on hand, they can make money but continually trail DL in profitability, and they have invested in the product.
WN was a relatively easy fix esp. w/ the highly valuable balance sheet.
AS and UA are similar in the middle of the industry.
AA has so many structural issues, like B6, that PE vultures probably couldn’t pull it off.
wiil be interesting to watch but Munoz is probably right… there are people that think they can make money fixing large portions of the US airline industry; history says they will do damage but management teams aren’t doing what they should so there is opportunity
Airlines reporter Scott McCartney said, “The restaurant chain Texas Roadhouse is worth more than American Airlines right now.” Honestly, that means your steak dinner is a better investment than a round-trip ticket. If private equity investors bought both Texas Roadhouse and American Airlines, maybe we’d finally get the only thing rarer than a good airline meal: actual flavor at 30,000 feet (and maybe a free bread basket for surviving turbulence).
Easy $ says, “based on what?”
LTD wishful thinking. AS is solid and well managed with a devoted customer base.
@Tim I’m not denying that the financials for Alaska have been worse than they’d like. There’s a difference between that and structural issues or irreversibly bad operations. Of course their balance sheet is weaker after taking on a money-losing airline and a Middle Eastern war. I’m saying that’s very different from “no chance of turning it around,” when airline strategy isn’t measured in months.
Alaska’s NPS scores are up considerably (above Delta’s, I’m told), they lead all airlines in YTD operational reliability, they’re exploring joint ventures with alliance partners, and last year they gave the Hawaiian unit its first profitable quarter since 2019. Southwest is retreating from Hawaii and Alaska has successfully built up a PDX hub from nothing. It just shouldn’t be mentioned with e.g. JetBlue.
For what it’s worth, I detest flying United but you’ll find that most people think they’re closer to Delta (in financials, loyalty, network, fleet) than you do
and they are losing money.
Why is it so hard for you to admit that reality?
and, yes, most bloggers love to lump DL and UA in the same financial camp but those in the know realize they are not.
? Of course they’re losing money, what makes you think I can’t “admit that reality”? They lost $76M ($102M adjusted) on $0.92/share in Q2 and they’re probably gonna lose money in FY2026 overall. Nowhere have I said they didn’t. I just don’t see it as an unfixable issue. Their last two unprofitable years were 2008 and 2020. I think we’re going in circles
@Tim Dunn — Looking forward to your next white-paper at Seeking Alpha!
I didn’t say it is unfixable but AS is financially weaker than before they got involved in AS.
and they are taking on debt which won’t go away quickly.
We saw the same thing w/ the Virgin America deal.
1990
keep your eyes peeled.
…before they got involved in HA
and they are doing it all while DL keeps circling at SEA and WN is at SAN.
Competitors don’t care if you are afraid of your future. If you are weak, then pounce
As they say in the airline world. You’re either eating lunch or you’re on the menu.
Oh good! We’re going to have more Carl Icahn corporate raider types destroying more airlines like Icahn did with TWA. That should be good for the flying public.
@Christian — Wait, what?! That doesn’t sound goo…oh sarcasm. Bah! (Not to worry, I hear the ghost of Lee Iacocca may finally come out of retirement to ask the unions to make concessions in exchange for the long-term survival of the company, and… oh the company fails, again, anyway… huh.)
@Ryan — Nom, nom, nom…
(@Retired Lawyer, if I recall correctly, you worked with Lee; isn’t that about what he’d prescribe, here? Those pesky workers, wantin’ pensions and healthcare. Psh. Don’t they realize Daddy billionaire needs a fourth yacht!)