American Airlines and United Airlines planes at Terminal A at Newark Liberty International Airport (EWR) in Newark, New Jersey, United States, Thursday, January 12, 2023.
Aristide Économopoulos | Bloomberg | Getty Images
United Airlines CEO Scott Kirby is said to have floated the idea of a possible merger with his rival. American airlines to the Trump administration earlier this year, a suggestion that, if implemented, would create the world’s largest airline.
Although the Trump administration appears more open to mega-deals than its predecessors, such a merger would face rigorous regulatory scrutiny from the four largest airlines (these two carriers, plus Delta Airlines And Southwest Airlines) already dominating around 80% of national capacity. If they combined, American and United would have a domestic share of about 40 percent, according to airline data firm OAG.
“It would be the biggest of all time. I don’t see even the slightest chance that a court would allow it,” said George Hay, a law professor at Cornell University.
American and United declined to comment on merger discussions, reported Monday by Bloomberg. The White House did not immediately comment on the reported discussion.
U.S. stocks rose 8% on Tuesday, but remain down more than 20% year to date. United’s shares rose just over 2%, narrowing their losses this year to about 13%.
Daniel McKenzie, an analyst at Seaport Research Partners, said he attributed the stock’s move “to short-selling coverage rather than the market attributing legitimacy to the merger idea.” He added that the agreement would be “dead on arrival, although politely revised until the public reaction became too deafening.”
If the Justice Department “doesn’t object, what would they object to? It’s very difficult to imagine a deal of this magnitude and concentration being reached,” said Samuel Engel, senior vice president at consulting firm ICF.
He said consolidation allows carriers to better control their capacity, which in turn can drive up rates, a key factor usually in antitrust investigations.
A merger between American and United would likely require significant divestments on routes where combining the two carriers would mean only one or two airlines would serve that route, said Tom Fitzgerald, an analyst at TD Cowen Airlines, who said 289 routes now meet that criteria.
The Trump administration, however, has been receptive to mergers in the sector.
“Is there room for mergers in the aviation industry? Yes, I think so,” Transportation Secretary Sean Duffy told CNBC’s Phil LeBeau last week of industry consolidation. Duffy said President Donald Trump “likes to see big deals happen, adding that he “should revisit” a tie-up.
The deal talks come as the airline industry faces rising costs for jet fuel, which is airlines’ biggest expense after labor.
Airlines are reducing capacity plans to save on costs, which could further drive up airfares.
“Over my career, I have seen many periods of disruption in this industry. And time and time again, high fuel prices have been the most powerful catalyst for change, separating the winners and forcing weaker players to rationalize, consolidate or be eliminated, Delta CEO Ed Bastian said on a conference call last week. “Delta is navigating from a position of advantage.”
Delta completed its merger with Northwest Airlines in 2008, giving it an advantage over other carriers that completed their merger later. Modern American Airlines is the product of a 2013 merger with US Airways, where several current airline executives worked, including United’s Kirby and American CEO Robert Isom.
Kirby, whom American fired in 2016, clashed with his former employer, including in key markets like Chicago.
Delta and United already represent the bulk of American industry profits.
American lagged both airlines as it struggled to capitalize on higher-spending customers who have driven the major airlines’ revenue in recent years. American’s net income was $111 million, on revenue of $54.6 billion last year, while United reported net income of $3.35 billion, on revenue of $59 billion, according to company filings.
The Biden administration challenged two major airline tie-ups and won. A federal judge canceled the partnership between American and JetBlue Airways in the Northeast in 2023 and early 2024, a court ruled against JetBlue’s proposed acquisition of Spirit Airlines, which is now in its second bankruptcy.
JetBlue and United formed a partnership that allows customers to book on each other’s airlines, but fails to provide schedule coordination under that failed U.S. deal. Kirby expressed hesitation about continuing with this deal.
“I like the partnership with JetBlue,” Kirby said in Boston last month. “I think a lot about their team. They have the right DNA and the right culture, but… we’re doing a great job growing. I feel really good about our autonomy.
“Mergers are big, difficult and complicated,” he added.