United Airlines CEO Makes Weird Public Confession About Trying To Buy American — And He’s Still Pitching Washington

United Airlines CEO Scott Kirby pitched a merger with American Airlines to President Trump. American Airlines declines to consider it.

Now United is in talks to buy assets from another airline and American is discussing a joint venture with Alaska Airlines.

And United Airlines CEO Scott Kirby has blasted out a message saying,

• Yes I pitched a deal with American
  
• It would have been great
  
• And it’s sad it’s not going to happen

A normal company response would have been: “American declined to engage, there are no discussions, we remain focused on executing United Next.” Instead, it does three things public companies usually avoid doing at once:

• Confirms a failed approach.
  
• Argues the merits of a dead deal.
  
• Pre-litigates antitrust approval.

Kirby says divestitures would “obviously” have been required but insists regulators would have approved it because this would have been a growth and international-competitiveness deal rather than a cost-cutting deal.

Why would he do this? Kirby is trying to control the narrative after being publicly rejected. I had a bold pro-consumer vision. American refused to even hear it. But I think there’s more to it:

• He is still pitching the Trump administration in public. The language is about U.S. aviation leadership, trade deficit with foreign-flagged carriers (which is genuinely silly), U.S. jobs, and national economic strength. That is not how you pitch customers – it’s how you pitch this White House, senators, Band labor.

• This smooths the way for future consolidation even if American is dead. It frames United’s motives in positive terms, and softens the ground for a second-best attempt.

• It pressures American’s board. Kirby publicly announces that United has the winning strategy, American could have been part of it, and American management “publicly closing the door.” American’s stock has lagged the industry and declined when it rejected the entreaty.

A deal to acquire American would have had one benefit – of giving American Airlines a clear, bold vision. But it also would have had broad antitrust problems at the state and international levels, and with the next administration, too. So I’m not sure Kirby’s confidence in regulatory approval is really justified.

Although this wouldn’t be as bad for competition as is generally imagined.

• For the most part, planes, pilots and seat capacity would remain in place – and Kirby’s vision is that with combined networks, it would even grow.
  
• That means an increase in supply, which is the main driver of price.
  
• The work of Nobel laureate economist Vernon Smith showed that competitive prices can emerge with surprisingly few buyers and sellers, undermining the classic idea that “many firms are required for competition. That work found that a market with just four buyers and sellers produced competitive outcomes (and four isn’t needed on each route, clearly, since the fee-inclusive cost of air travel has continued to fall in real terms).

A rejected merger proposal usually gets buried, not celebrated. This signals that United is not done in M&A. Maybe in declaring the American deal dead, it’s trying to resurrect it. Or else it’s setting the stage for a different deal. Kirby didn’t just admit United tried to merge with American. He released the antitrust, political, and investor case for why United should be allowed to get bigger.

Kirby claims that ‘the U.S. has a ‘trade deficit’ with foreign airlines’, and that they operate more seats in the U.S. than U.S. carriers do, carrying more Americans than U.S. carriers do. That’s an argument designed for President Trump but it is also deeply misguided.

• Foreign-flag seat share is not the same thing as a trade deficit. This doesn’t even talk about money. Remember that United itself is in a revenue-sharing joint venture with Lufthansa Group and Air Canada, as well as ANA and Air New Zealand. Most international passengers also make connections, so domestic travel is a part of this, too.

• Since foreign airlines offer more capacity, better service, lower fares, and more nonstop options, that is actually a benefit to U.S. consumers. Outside of joint ventures, it might be bad for airline shareholders compared to true protectionism. But that’s the limit of who’s harmed by consumers having choice.

A United – American merger doesn’t even remedy this. It wouldn’t add slots at London Heathrow or Tokyo Haneda (it might even require some slot divestitures, perhaps to Virgin Atlantic although showing how complicated this is they are 49% owned by… Delta). It doesn’t add widebody aircraft or pilots. Kirby said during last week’s earnings call that it is “extremely unlikely” United would open a foreign hub.

Bottom-line is that Kirby is just trying to answer a domestic antitrust problem with an international competitiveness story.