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 too 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.
It would be “unlucky” for there be a merger? Unlucky??
It’s interesting to me that NONE of the major domestic carriers are profitable from core operations. Without credit card deals and other ancillary income they’re sunk. One would think UA adding a formidable presence in NY (not Newark) and South Florida would drive increased credit card activity driving enhanced revenue performance.
If B6’s issue were simply debt once would think a trip through Chapter 11 would be a viable path…until you start considering the overall economics of the industry at which point B6’s ability to right the ship seems questionable at best.
It is vulturemode. JB will be cheaper after a Cv. X filing.
JetBlue is the best. They do not overbook. And they have leg room.
I am so tired of hearing from this idiot and his terrible airline
I much prefer the Kirby from Nintendo.
@HM Devitte Mckee get it. Go B6! Go!
@Parker also gets it. Banks with wings.
Oh, no! Here we go again… Blah blah RSMs/PRASM… Yada yada baggage handling… A350-1000s will take over the Pacific… Starlink can’t handle all the traffic and LEO will be better… WIDEBODY DELIVERIES! … Word salad about labor cost advantage… Unsubstantiated claim… *(challenged about unsubstantiated claim) … CHANGE SUBJECT! … Refinery…
Ugh.
Parker
and yet the big 4 HAVE embraced the “all in” revenue model that includes credit card revenue; B6 simply does not have the size to get near enough credit card revenue to offset their higher costs.
Danny mockingly can’t stand that DL has figured out how to become the most profitable US airline and has made life for B6 miserable.
Given that UA would be stepping into the same 2nd place position at JFK and BOS behind DL, Kirby knows full well that he can’t compete from that position and he can’t win against DL. GIven that Kirby thought he could run off AA from ORD and failed at that, he knows full well how the industry revolves around the biggest players- and, as much as he thinks UA is it, clearly DL is the player he can’t top or stop.
Mckee,
B6 does manage to rank 5th out of 10 US airlines in involuntary denied overbooking so how they run their operation does matter.
and, as much as some don’t want to hear it, the perpetual leader in the least invol DBs is Delta. UA is just above B6 in the ranking so it is hardly industry leading
yet more proof that DL is the airline
All the major Airlines are owned by Black Rock and Vanguard. So how is a company owned by the same companies going to buy another company owned by the same owners?
Of course United will only buy JetBlue post Bankruptcy. No other company has stomach/can risk to buy JB. And the public will be worse off.
Spectrum Boy is in his safe space this morning because of all the bad DL media out today; understandable given his condition. I do adore all of the internet CEOs and bloggers, with no education or experiance in an industry opining and offering unsolicted advice to those succesfully in power positions. The humour is worth the clicks, I will give you that GLP1 boy!
Gee wiz, Tim, you’re slipping. I thought Delta was the world’s only PERFECT airline, not merely “the” airline.
DL is not a good airline, but they are the most profitable because they have convinced enough people like Tim Dunn that they are worth paying a premium for. And they have a good credit card ecosystem which is really how anyone is still in business in this industry.