Like all good companies, United Airlines never stays still.
The U.S. carrier announced its involvement in a more-than $20 billion transformation of Washington Dulles International Airport last week just days after a report revealed it secretly reached out to Delta Air Lines over a merger last year. United also made an unsuccessful approach to American Airlines earlier this year.
The Trump administration is playing a key role in the Dulles development to create an "international gateway worthy of the greatest country on Earth," Transportation Secretary Sean Duffy said.
But you're still thinking about the mergers aren't you?
Talk about taking a big swing. Both potential deals would create the world's largest airline by some distance. They both would have faced a challenging -- and likely unsuccessful -- regulatory battle. Besides, neither deal got past the first stage with Delta and American rejecting United CEO Scott Kirby's advances. United did not respond to a request for comment on the Delta approach.
Failure to Takeoff
The very notion of a United-American merger was given short shrift by analysts, politicians, and industry insiders.
American Airlines CEO Bob Isom, perhaps summed up the reaction best. "I want to stress the idea of the two largest airlines in the world getting together, that is something that we've viewed as anticompetitive," he said in April. "And obviously, everybody that has weighed in suggests the same thing."
Wedbush analyst Michael Piccolo said a merger with Delta would face even greater antitrust hurdles than the failed American approach, "given the combined entity's dominant share of premium and network traffic."
He noted that Delta and United generated more than 90% of the industry's entire profits last year.
High Hopes
So if such a deal was never going to get off the ground, what was United's thinking?
Well, if you briefly suspend the reality of the regulatory hurdles, it makes perfect sense.
It's about growth and about creating a U.S. airline that can take on the world. Cross-border international mergers aren't an option due to federal laws limiting foreign ownership of U.S. airlines -- and reciprocal restrictions in other countries.
"The bold idea I wanted to pursue was about growth that would usher in a brand new era of leadership by U.S. aviation," United's Kirby in a statement setting out his thinking behind a tie-up with American earlier this year.
He added that there's a "big trade deficit" with foreign-flagged airlines, which fly about 65% of long-haul seats coming into the U.S. But just 40% of the passengers are foreign citizens.
International revenue has been a strong area of growth for United in recent years -- it jumped 11% to $6.6 billion in the second quarter, making up 41% of the airline's total passenger revenue. In the second quarter of 2019, the last comparable pre-Covid-19 period, that stood at just under $4 billion -- a 67% rise since.
Maybe the beefed up Washington Dulles Airport project is the next best thing. A new concourse will open later this year with 14 new gates for United to help it expand its international network.
At least United has the support of President Donald Trump on this one. Trump dealt a damaging blow to the embryonic idea of a United-American merger earlier this year, when he said: "I don't like having them merge."
Trump Bump?
There was a belief within the sector that the Trump administration would look more favorably upon airline M&A than under President Biden. That might partly explain United testing the waters so boldly in the first year or so of the president's second term.
The proposed JetBlue Airways and Spirit Airlines merger was blocked under the Biden administration. The Justice Department sued to prevent it on antitrust grounds, claiming it would lead to higher fares, and a federal judge agreed in January 2024.
Biden described it as a "win for American consumers and competition." While the judge wrote: "to those dedicated customers of Spirit, this one's for you."
Well, there are no Spirit customers anymore. The airline ceased operations in May after failing to secure a government bailout deal.
The merits of the decision are a footnote now. The point is that the Biden administration created a tough regulatory environment for airlines -- it also successfully helped terminate JetBlue's alliance with American Airlines in the New York and Boston areas. And there was hope Trump may be more lenient.
Consolidating Carriers
Mergers have still happened. Alaska Airlines and Hawaiian Airlines completed their merger in September 2024, but it helped that there was very little overlap in the carrier's flight routes. Allegiant successfully acquired low-cost rival Sun Country Airlines in May this year.
However, both deals were under $2 billion in value and there is a growing sense that the days of airline megamergers are over.
But does United's appetite for a deal mean it could pursue a smaller carrier? In May, Kirby was asked by a Bernstein analyst about the suggestion his bold move for American was designed to make it easier to do a smaller deal.
"It's just idiotic," he said, "that was definitely not the plan."
The United CEO has repeatedly rejected the concept of merging with JetBlue, perhaps the only reasonable option available for consolidation.
However, Wedbush's Piccolo said the Delta talks "reinforce our view that Kirby will continue to probe large-scale consolidation opportunities, whenever political or competitive conditions shift." That keeps JetBlue, United, and American in the conversation regarding future M&A.
For United investors, having such a bold, ambitious CEO is a good thing. The stock has climbed 396% since Kirby took the helm in May 2020 -- outperforming Delta, up 290%, and American and Southwest Airlines, both 56% higher.
It has also comfortably beaten the S&P 500's 150% rise over the same span.
While megamergers in the sector may not compute for some, what makes total sense is to trust Kirby to fly the shares higher.
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