United Airlines CEO Scott Kirby has pitched regulators on the idea of buying American Airlines.
When Transportation Secretary Sean Duffy talked about the possibility of airline mergers – and that President Trump likes to see “big deals happen” – everyone assumed this referred to the possible acquisition of JetBlue, by United, American, Southwest or Alaska. But perhaps “big deals” was a clue.
- Scott Kirby was fired as President of American Airlines. He loves to troll – and beat – American, and clearly relishes his airline’s outperformance. This would be the ultimate comeuppance.
- This would give United the presence it’s looking for in New York, make them the largest player in Los Angeles, and give them a hub in the Southeast.
- Under traditional antitrust analysis, this would never be permitted. Together the two airlines would have more than one-third of the domestic airline market. Their combined position in Chicago and Los Angeles would not normally be permitted. New York might be considered a problem, to the extent that Newark and the New York airports are considered one market.
One imagines that some of the most extreme competitive concentration, such as in Chicago, could be addressed by spinning off the American Airlines position there – the way that United and US Airways had once proposed to create ‘DC Air’ under the ownership of BET founder Robert Johnson, before ultimately walking away from that deal amidst competition concerns and an economy that was turning south. Duffy himself references the possibility of carving out and disposing of assets to address competition concern.
But it’s not enough to get signoff from the Department of Justice. So even if these are unusual times for the executive branch of the federal government, and the Department of Justice cleared such a merger under Hart-Scott-Rodino review, declined to sue to block it or agreed to a settlement,
- Any state can sue to block the merger and seek an injunction under the Clayton Act on behalf of their residents.
- Individuals and groups can also sue, provided they can demonstrate standing and can demonstrate antitrust injury. That includes competitors, customers, suppliers, and unions.
So any potential combination between American Airlines and United would face not just significant scrutiny under traditional federal antitrust rules, it would face a flurry of opposition by states and private actors as well.
Ultimately, consolidation of this sort is not likely to benefit consumers (the traditional antitrust analysis). That’s not just about airfares, it’s about products and services, and even frequent flyer programs. The barriers to entry in the airline industry are significant, from competition being blocked by government-granted slots and gates to limits on foreign investment, to regulatory barriers to starting new carriers.
That doesn’t mean all mergers ought to be blocked. Spirit Airlines would have been stronger had the Biden administration not blocked JetBlue from acquiring it (though JetBlue would likely be weaker!). Still, this is one of the wilder suggestions we’ve seen. But it lends new significance to United Airlines CFO Mike Leskinen telling investors that “it’s a unique environment that — where M&A is possible.”
As long as they name the new airline after the President and give him a golden share with royalties paid to his family’s Qatari bank account directly… sounds like this will actually happen.
/s
Even with all its problems, I’ll take American over United any day.
@Ron — Please consider Delta. (@L737, where’s @Matt?!)
@ Gary — What @1990 said, although I suspect that a one-time 7-figure donation to The Trump-Epstein Foundation would do the trick.
If this actually comes to fruition, Tim Dunn would almost certainly have a stroke. Of course, he will tell us that this cannot happen. Under normal circumstances, I would agree 100%, but there is a small chance if United hurries.
Probably just a negotiating tactic. Ask for something outrageous (AA), settle for something less(B6).
Scott definitely has an axe to grind. Good for him for at least having the motivation to take it to his former employer.
@1990: thanks for the laugh, I’m old enough when he had his own airline back in the day competing with New York Air.
If this rumor that came from Reuters (I did click to the source) is true, I could make a killing buying American Airlines stock. When the actually bidding starts, wait for the price to double, the sell.
Easy peasy money, LOL, I am heading to my stock account right now. Wait, I think my wings are done.
I just saved my wings, what was I planning to do. I forget. Fortune made and lost through absentmindedness.
@DunkinDFDubya — And, like his casinos, and scam university, it didn’t go too well. Reality TV and branding really were his strengths.
@Mantis — You know, Dr. Toboggan… you’re probably onto something…
@Other Just Saying — Yeah, yeah… AAL… to the moon… diamond hands… whatever the kids over at wallstbets would say… regards.
All of that, said and done, with a corrupt WH who owns the DOJ, and is more than happy to play for pay..this could screw up the industry and the economy even further. terrible times ahead.
United SUCKS! Any airline (even Frontier) is better than United. Scott Kirby is also a POS. American being better than United is proof if this. I wouldn’t spend a dime with United and American definitely upgraded itself when they ousted him.
Shoot me now even with the thought of such a merger
American all the way even with all their worts and some of their cranky FAs
Delta still the worst in my perception for all reasons.I AVOID at all costs like Spirit Allegiant Frontier etc
With inflation top of mind for constituents, there’s not much case a big merger at this stage will lower average or median fares. Might get bipartisan support on this being unhelpful to inflation.
Why wouldn’t Kirby be serious? He would become CEO or the largest and most powerful airline in the world. His biggest obstacle isn’t regulatory approval, it will be AA shareholders.
And then if he still wanted he could go after B6 a year or two later, and get them a much lower price than now. Or there regulators may prevent that deal.
In a word, NO!! This merger would be so bad for consumers. The big three are big enough.
UNITED RISING
I just wrote an article this weekend on another site that AA’s future could be redefined in 2026 and AA does not have the ability to determine its future given its financial position.
DL and UA are the only two airlines that even remotely have the potential to merging with either of the other two megacarriers – and DL is in far better position than UA.
There is no chance that either DL or UA could obtain AA in its entirety but it is possible that carving up AA in pieces could be the deal the kind of big deal that Trump loves to see.
let’s see how it plays out but, as I said from the beginning, the notion that UA and B6 would be the sum total of consolidation in the US airline industry is incredibly naive
April fools????
It’s stunning how much less American’s market capitalization is, and its debt is only going have a bigger spread from UA as fuel prices dig in.
This isn’t as crazy as it seems from the perspective of AA shareholders. UA is only going to out perform AA stock more as time goes on.
I don’t want to live in a United American world. I don’t want to pay that much money for a plane ticket. Southwest, on the other hand, is likely an attractive target at this point. It has cut itself to the bone, and everything about them screams “buy me!” I hope that never happens, but it probably would if they gave up gates at DAL and slots at DCA. I still believe a B6/WN tie-up would be optimal.
Actually, the concept is not as crazy at it sounds. American Airlines has essentially no presence on the West Coast other than to its hubs. AA has PHX, whereas UA has nothing similar to grab growing Sunbelt traffic. AA in DFW is almost triple the size of United is in IAH. AA has no mid-continent hub like UA and DL do in DEN and SLC. AA’s hub in PHL is probably losing money. AA’s real strenghts are in DFW and CLT, the later of which has virtually no transatlantic service and is more than 3X the size of UA IAD hub, where there is substantial transatlantic service and more coming. AA is losing money in ORD and will probably de-hub it anyway when the new gates are done in PHX and DFW.
This would substantially improve UA’s position across the Sunbelt and in the Southeast, although DL in ATL would still be unshakable both because of its physical location and that Atlanta is the largest regional city.
A merger would rationalize LAX where it’s unclear who, if anybody, is making money.
The narrowbody fleets are reasonably compatible, although AA’s is weighted towards the not latest version of 737’s and A321’s. AA is in a world of hurt with widebodies, having gotten rid of too many during Covid and now not being able to get 787’s until the early 2030’s and only a few at that.
Merging their IT would be a nightmare, but obviously Kirby has considered it.
American has a higher debt load and lower profit margins, somethat isn’t likely to change as AA lacks the international footprint compared to UA to capture higher profits and deal with higher costs.
UA would be saddled with American Eagle’s less productive fleet, which, because of AA’s scope clause, operates a good chunk of planes configured for 65 seats while UAX is flying the same planes with 70 or 76 seats. I suspect that UA’s new flight attendant contract allowing for the company to wholly own a regional didn’t happen by coincidence.
But most importantly, if you are an American Airlines stockholder, would you rather be holding AA stock going forward or UA stock?
Go big or go home, i guess. Why bother with the small potatoes of JetBlue when there are large melons to be had at American.
@Alex — I believe you meant ‘pay for play,’ not ‘play for pay,’ unless that was an intentional pun. It is wild how the right wingers on here will often throw shade at Pelosi or Hunter or Hillary, but be willfully ignorant when it’s literal billions of dollars in crypto into the current President’s family. We need to ban all trading for elected officials, undo Citizens United, and end all corruption, large and small. In about 200 days, we get to decide again. I hope we’ve learned some lessons…
@Tim Dunn — There does not *need* to be any consolidation here; folks like yourself may want mergers because there’s a premium owed to consultants, attorneys, and executives who grease the wheels to make these things happen. Sure, add incessant commentators to that list. *cough*
Let’s be clear: Mergers rarely benefit consumers or workers. It’s just more reverse-Robin Hood and corruption. Steal from the poor to further consolidate power and wealth to the already powerful and wealthy. When will it ever be enough for you?
Some states will file suit as well as DL and WN. This would be tied up in the court for years. ORD would be very thorny. I don’t see it happening.
As far as “mergers do not benefit” consumers. No airline makes money on coach fares. If you are booking BE and even a Main Cabin fare you are getting the service for less than it costs the airline to delivery that service. How is that “anti consumer?”
1990
there IS a need to remove unproductive and unprofitable capacity from the US airline system.
AA has essentially been operated at breakeven for a decade – it is an enormous behemoth that operates at a loss for “the public good” of carrying passengers at the expense of AA’s stockholders.
That may chafe you but AA is a publicly owned for -profit business.
AA is not alone. There are multiple US airlines that do not viably exist. They are zombie companies.
DL’s exec recognized it; the DOT secretary recognizes it.
There will be consolidation in the US airline industry as a result of high fuel prices.
Could AA be carved up? yes It can’t be bought by or merged with anyone whole.
All of the talk that B6-UA that consolidation in the US airline industry would be the pinnacle was and is naive.
@George Romey — *sigh* Your classic oversimplification tropes, yet again.
If a merger leads to a monopoly or further consolidation of an industry, it is clearly anti-consumer. Once competitors are driven out, the remaining giant can hike prices. Predatory pricing. C’mon. Don’t lie to people on here. Also, mergers can be anti-consumer in ways unrelated to price. Reduced frequency of flights, fewer destination options, reduced legroom, or worse customer service, etc. It can be a race to the bottom where quality vanishes, consumers lose even if the price stays low. You’re being willfully ignorant on here, like usual.
You also said: “No airline makes money on coach fares.” False, and a red herring as it relates to mergers. You should know that LCCs entire business model is based on making money off those bare fares. Sure, it doesn’t always go well (Spirit), but sometimes, it does (Ryanair). Based on your comments here and elsewhere, it is clear that you personally don’t ‘like’ those airlines (I recall how you repeatedly say on here how you want them and their target market to fail, which is sad, because those are real people; not to mention, healthy competition is good for all of us who fly, yourself included). That said, yes, any fare higher than the marginal cost is usually ‘profit’; if higher margin F or J subsidizes the back of the plane, that’s fine, but not really at issue here.
@Tim Dunn — Lordy. “unproductive and unprofitable”… so, do we ‘get rid’ of retirees, or the disabled? You’re making a horrible argument here… ‘profits over people,’ basically. While that may ‘win’ you ‘brownie-points’ (Biscoff bits, if you will) with your far-right extremist buddies, when real people are impacted by this directly (loss of jobs, loss of routes, their smaller airports closing, etc.) they are not gonna be happy with the outcome you prescribe.
@Tim
if delta were to take over AA, it would likely charge 500K to fly to jeddah/Riyadh in the summer.
Yes, of course it ridiculous. It’s hard to believe that Scott Kirby would indulge in such a fantasy. I guess he remembers his days at AA and would like to connect the dots of his life. It would never be approved and the 2 pilot unions would go nuts.
Anecdotally, it would work for me. I am retired UA/CAL but I live by the DFW hub of AA. I usually have to go to IAH or DEN to go other places, it would be great to have access to a big hub near my home.
Oh well, for non-revs, there are seldom any seats available anyway. The airlines are not hurting much from a benefit you can’t much use.
@ Tim — Well, since AA flies for the public good, perhaps Delta should give its next government handout to AA. It’s for a good cause — you know, carrying people to airports closer to their homes so they don’t have to drive 3 hours to ATL to catch their flight.
AA and DL largely overlap in the SE and carry the majority of cities in the eastern US not served by WN.
They won’t be alllowed to consolidate that strength but AA does have thhings like a Texas, MIA and DCA hub which DL does not.
If you take pieces of multiple airlines including potentially B6 minus some of their NYC operation and add CLT, UA could round out its weaknesses.
Whether the government wants to be a part of carving up multiple airlines remains to be seen but among potential acquirer airlines – AS, DL, UA and WN – of existing assets by low-performing airlines – which include AA, B6, and NK and perhaps more – you could conceivably see fewer total airlines, fewer total coach seats but several airlines larger than today.
@Gene — For the public good! Bah! I wish!
As a retired antitrust attorney (FTC, major corporate, major NY law firm) – you’ve barely scratched the surface of the regulatory issues involved:
Markets: Global, US domestic, US-North America, US-Europe, US-Asia, US-South/Central America. Each needs to be analyzed separately. Any country where the two airlines compete head-to-head is a separate submarket. And some of those countries have their own antitrust enforcement.
Network effects and issues: Effect on three existing alliances, and issues relating to whether those survive at all, and in what form. All existing code shares of both airlines crash and burn, and need to be renegotiated and re-immunized by all relevant enforcers.
Enforcement agencies and premerger notifications: USDOJ, USDOT, Exon-Florio (Both airlines have substantial DOD contracts), U.S.State Enforcers, EU DG Comp, Canada Competition Bureau, Mexico Comision Federal de Compentencia, UK Mergers and Monopolies Commission, Brazil CADE, Argentina (MERCOSUR), Japan Fair Trade Commission, China (don’t remember the agency name) and others. Last time I worked on a major merger, we did 46 premerger filings – and that was 15 years ago.
My take: <5% chance it would ever be announced officially. Although Isom's change of control compensation provision in his contract would be a major incentive for him to want this. All y'all can have fun predicting what the political reception would be for such a deal in Europe, Canada or Mexico.
If nothing else, AA would be largely taken out of play while the antitrust process plays out. IAH, DFW, and ORD have big airport expansions underway, it’s not clear where all the passengers are going to come from.
Maybe Delta buy’s AA’s position in ORD and deemphasizes MSP and DTW as hubs. IAH might be the loser, but I could see Delta trying to improve it’s position in either DFW or IAH instead of pushing Austin and United would be selling. In New York, United could always say that Newark isn’t a NYC airport, so it doesn’t count. United dominating both LAX and SFO probably wouldn’t work well for antitrust on flights to Asia. Flights to Hawaii may also be a concern.
This might even provide some cheaper gates to Spirit in otherwise expensive airports.
What hasn’t really been significantly mentioned is the airline credit cards, which is the key to making the whole thing work. It obviously reduces the number of banks who can have an airline partner, so UA could play Citi and Chase against each other.
The other issue is with airline alliances. One of the big 3 would lose a major US partner. It’s BA vs Lufthansa in Europe. Asia would see some realignment.
Lots of challenges for sure.
Me thinks this is all about lining up approval for a UAL -JetBlue merger.
If United takes over AA, I’m flying Delta. I had a miserable trip on UA in 1996, and I’ve spent the last 30 years avoiding UA.
If AA dehubs ORD (I don’t believe Kirby’s lies about AA losing money at ORD), I will simply connect at PHL, CLT, DFW, or PHX. I’m Lifetime Gold. My wife is Platinum Pro. I’m not about to be treated like second-class citizen by United.
Two points. First, ORD would become a mess as a UA-inly hub. Try connecting from the north end of C to the far end of H, K, or either arm of L.
Or, once the new satellite concourses are built, is there any need for Terminal 3?
Second, what happens to Oneworld? I can’t see Star’s European members, including LH and the airlines it owns, being thrilled with BA and IB joining. I doubt ANA would want JAL in Star. I rather doubt Air New Zealand wants Qantas in Star.
Yet, Oneworld makes no sense without a U.S. carrier.