United Airlines pitched a merger to Delta Air Lines according to new reporting in the Wall Street Journal. United CEO Scott Kirby called his counterpart at Delta Ed Bastian. Delta did “preliminary due diligence” on a tie-up, but the conversations didn’t bear fruit.
This comes alongside United having pitched the idea of taking over American Airlines in an Oval Office meeting with the President. American’s board rejected the offer, and by explaining that it was dead on arrival because the deal would be too anticompetitive basically killed prospects by providing admissions for any potential antitrust case against it.
There’s No Business Case For This Deal
Combining Delta and United would make the largest U.S. and world airline by a wide margin. But it wouldn’t solve a problem that either has, or make better use of either’s assets than each one makes of them on their own. In fact, any deal would be subractive – they would have to give up some of their best assets to appease regulators and the courts (if this were even possible).
At least with American there was a plausible argument that the Dallas-based carrier has financially underperformed and United management might make those assets perform better. In the case of Delta,
- There’s no case that the Atlanta-based carrier is an undervalued asset. It is generally more profitable and valued by investors than United.
- There’s no case that the Atlanta-based carrier is poorly-run, so combining it with United gives better management (and therefore profitable results) to those assets.
- There’s no case that United or Delta on their own are too undersized to be viable, so a combination is necessary for them to succeed.
Instead, and bolstered by Kirby’s apparently agnosticism towards merging with either Delta or American, it’s pure hubris – a desire to get bigger rather than earn outsized return on capital for shareholders.
The Antitrust Hurdles Would Be Unimaginable
The idea of a Delta-United merger is a complete antitrust non-starter, and that’s even assuming getting an antitrust pass from the Trump administration (both United and Delta donated $1 million to President Trump’s inauguration, and Kirby even publicly supported the President’s tariffs which were harmful to United’s international-heavy business, and publicly blasted Democrats for obstruction in the fall government shutdown.
- Each state attorney general has their own independent cause of action (except, arguably, Delaware – Wilmington is served only by Avelo – and perhaps New Hampshire which has United but not Delta service).
- Myriad counteries get a bite at the antitrust apple as well.
Delta has 18% of the domestic U.S. market, United has 17%. Together they’re nearly 35%. By scheduled seats they’d reach 37% (because United and Delta operate longer flights on average than Southwest).
United and Delta each control about 24% of the New York market, and together would have 48.6%. Twenty New York – Europe city pairs have both United and Delta service. United is 16% of LAX and Delta is 19%, together representing 35%.
Delta and United together own more than one-third of Republic Airways Holdings, the primary competitor to SkyWest in the regional market, and both contract with SkyWest – which would itself lose significant bargaining leverage.
United has a 40% stake in CommuteAir and Delta owns Endeavor Air outright. Perhaps now we know why United was so adamant about getting its flight attendants to agree to its ownership of a commuter carrier (without staffing them with United’s union flight attendants) in their recently-approved contract.
Foreign Governments Won’t Stand For It
The Delta-Air France-KLM-Virgin Atlantic joint venture together has a 25% seat share in the North Atlantic. The United-Air Canada-Lufthansa Group joint venture has a 28% share. United and Delta on their own would be 24%. Add United to Delta’s joint venture and that’s 37%. Add Delta to United’s joint venture and that’s 40%. There’s no world in which European regulators ascent to this.
In South America the two overlap on New York – São Paulo. Via different hubs, the two networks compete to São Paulo, Buenos Aires, Rio, Bogotá, Lima and Santiago. Delta’s joint venture with LATAM substantially broadens this, creating antitrust problems across South America (before Delta partnered with LATAM, American faced huge antitrust resistance to a joint venture with them – adding United into the mix likely kills the joint venture, and might not review even without it).
Japanese and Australian regulators are likely to have issues with the tie-up, and it could jeopardize Delta’s joint venture with Korean Air and United’s with ANA and Air New Zealand.
United and Air Canada dominate the transborder Canada market. Delta and Aeromexico – already facing legal challenge from DOT – are the dominant force between the U.S. and Mexico.
The two airlines would have to give up crown jewel partnerships but even then might not satisfy regulators in any given market. It’s unclear the U.K. would approve the combination even if Delta divested Virgin Atlantic. They might not be able to retain their full portfolio of Haneda slots, if United tried to retain its ANA relationship. There’s already virtually no competition with Korean and Delta between North America and Seoul. The little competition that exists is mostly from United.
Ownership Stakes In Foreign Airlines Further Complicate Matters
Things get even more complicated when you look at ownership stakes. Delta has a 49% stake in Virgin Atlantic, 19% stake in Aeromexico, 15% of Korean Air, 13% of WestJet, 11% of LATAM, 3% of Air France and 2% of China Eastern.
United owns 9% of Azul, and stakes in Avianca and Gol via Abra Group and they’re a minority investor in JSX.
A Merger Would Erode Delta’s Key Competitive Advantage
A United merger would almost certainly mean unionization across Delta. Today, only pilots and flight dispatchers are unionized. Flight attendants, airport agents and reservationists who provide customer service are non-union. Mechanics, whom Delta has turned into an independent profit center are non-union. These represent competitive advantages for the business which any merger with a similar-sized carrier would almost certainly erode.
The Two Airlines Haven’t Partnered Since 2003
Delta and United did actually used to be partners. I used to credit my Delta Air Lines flights to Mileage Plus! The two had a frequent flyer partnership that ran 1998 – 2003, and they intended codesharing which was killed by Delta pilots. The deal ended as United aligned with US Airways and Delta with Northwest and Continental.
They were both much smaller then. Delta and Northwest hadn’t merged. United and Continental hadn’t merged. There were several more players in the domestic market.
This casts Scott Kirby’s efforts to take over American Airlines in new light. It isn’t about taking American, an underperforming asset, and making the two great together. It’s about buying whatever larger airline he can – less as an investment and more just to be the biggest by a wide margin. And since his Delta entreaties apparently came last year, American may even have been his second choice.
He’s just going down the list. They’re going to buy Alaska. Alaska’s valuation is really low. They’re worth not much more than they paid for VX some 10 years ago.
Dumb AF to even think there was a chance they’d be interested or the us and foreign govts would allow. Pure vanity
Mkt share would be higher than 35% I think the regional Skywest etc isn’t in those numbers.
what a complaisant little lickspittle you are, Mr. Kirby – maybe Disco Donnie will “allow” you to clean the toilets on Donnie’s new airplane – ONLY THEN you can ask him for permission merge with Delta. Obviously the merger would be highly detrimental to competition in the airline industry, so either you “honor” Donnie with a suitable amount of financial grease buying sufficient qualtities of Donnie or Melania meme coins or the like, or you personally prostrate yourself before him – personally cleaning his toilets, licking his boots to his satisfaction, etc. etc. OR BOTH.
Scott Kirby is one scared puppy
@Tim Dunn — Short and sweet!
US airlines are too big! Rather than more consolidation, let’s see the largest carriers broken up to create actual competition.
But how many millions is he greasing the right pockets with in the administration and congress? Why assume that law will prevail in the current environment?
This would have been a great deal for consumers!
@DaveS — For what he’s doin, no pockets because the pants are off…
I think this is crazy from a business perspective but don’t understand why states would get to file complaints. This should be Federal approval only (and if foreign countries don’t agree they could stop flying there). Similar to the CA lead blockage of the Paramount merger liberal states and activist judges should be able to block legitimate corporate mergers. The market will always settle things out so the politicians need to stay out of the mix.
BTW @1990’s head just exploded
@Matt Lechner – Complaisant lickspittle… that’s gold! Gonna have to remember that.
I do wonder what Kirby’s endgame is here. He’s not stupid, so he must know that none of the big three can merge with another big three. For so many reasons — including the fact that there are three major global airline alliances — no one believes it would be good for America to merge these successful and competitive carriers. On the other hand, reasonable arguments can be made that just about all other combinations are permissible if you are not anti-business.
Anything that destroys Delta, especially if the hand is that of Chicago’s Hometown Airline, I’m totally in favor of.
@Retired Gambler — Now you (and Mike) are sounding like a ‘complaisant little lickspittles,’ too!
chopsticks,
he is not smart.
He is consumed by his ego and convinced that he can create a world that solely benefits himself.
He knows full well that UA can never achieve DL’s levels of success so he wants to eliminate any competiion he can.
We’ll hear about his overture to WN by fall.
@Matt Lechner
Do you also dream about Trump? I bet he appreciates your support!
@1990 – Lick my taint, you complaisant little lickspittle. Your mom will likely hear it though, because those floorboards are thin. Then again, you’ve never been quiet about anything, so she’s probably used to it.
I heard from reliable sources that the new combined airline was going to be known as Middle Finger Airways.
I think Kirby would be an admirable number two to Bastian.
@Tim Dunn — I take it you were referring to Mr. Kirby, but… “He is consumed by his ego and convinced that he can create a world that solely benefits himself” most certainly applies to a different ‘leader,’ too. No, not talking about Ed. Talking about you-know-who. Bigly.
@Mike Hunt — ‘Mediocre.’
Was never going to happen. Maybe he can try for AS. I’m not sure what kind of regulatory hurdles he would have with SFO and LAX.
1990
don’t disagree (funny how much we are in agreement these days)
George,
UA loves to talk about being the largest airline in the world and largest TPAC airlne and yet no sane state or federal regulator is going to just bless a merger that blesses UA’s successful elimination of AS’ SFO hub a decade after the Virgin America merger.
as much as some cling to the idea that UA can get back into JFK, I strongly suspect that UA has been told by his legal team that talk to the feds regularly that they will not even support UA’s obtaining slots from B6 at JFK – which is why he now says taht B6 isn’t enough.
UA simply spent too many years focusing on size for size sake and failed to build what really mattered and where.
and everyone else says that UA can’t grow its way out of its strategic failures at everyone else’s expense
@Tim Dunn — Maybe it’s because I finally got to use my RUCs on some transcons in D1! Bah!
whatever it takes, man.
whatever it takes.
DL just might send some 764s over to EWR for EWR-LAX. You ready?
@Tim Dunn — Alright, now THAT would blow my mind. (And, I’d argue, that Terminal A SkyClub is actually one of the better medium-sized lounges around. The food was really good. In general, A is where it’s at now at Newark; Amex is supposed to open the new Centurion there, soon… we’ll see.)
“DL just might send some 764s over to EWR for EWR-LAX. You ready?”
despite Delta announcing what they WILL be using on EWR-LAX, I have no doubt you’ll call this a prediction in 3 years, sTD…
get a life
I thought it was interesting that this combo was pitched before the potential American deal. The cruel math is that the assets most likely to be demanded in divestitures such as New York slots, Latin American routes, Los Angeles gates, are disproportionately the assets that make the deal (theoretically) strategically interesting. You’d be paying a merger premium, absorbing enormous integration costs, and then handing the best pieces to competitors. It’s hard to make that pencil. The underlying dynamic is that in a mature market, short of competitor stumbles, it’s hard to really have meaningful organic growth in any of your hubs, so a merger becomes a way to solve for that. This one was rightly DOA.
Any such massive ramp-up in oligopolistic power in the marketplace and a future US government would be under a lot of public pressure to break up the combined company.
@MaxPower — See, this is why I love competition. So, for years now, Delta offers its premium lounge to premium transcon passengers; United… *crickets* …until this March when United now includes Polaris lounge for premium transcon! Woah! (Need we bring up the WiFi saga next… B6 and DL had it way before UA and AA…) Ok, otherwise, I’m tickled for the Coastliner, so just keep up the healthy competition, fellas!
Max”s crotch is might sore these days. I never said that DL would START EWR-LAX with 764s. I did say they might use them to add premium cabin services if they decide their bookings are looking good enough.
and, yes, I said that years ago that DL would go after UA’s LAX and TPAC network and would be more successful than UA would be taking its share of the domestic market from AA, DL and WN.
DL is already the largest airline at LAX, is growing TPAC flights at a faster rate than UA, and UA’s mainline domestic share is still #4 out of the big 4 while the FAA is extending caps into EWR and ORD, two of UA’s largest hubs.
Sometimes it is better just to admit someone is right rather than argue