An “influential” Wall Street analyst is asserting that a merger between JetBlue and United is more likely than you might think. I am not convinced…
In paywall-protected analysis, Hunter Keay of the Wolfe Research has opined–
A few investors recently asked us about further M&A in airlines, and the idea of UAL+JBLU came up. Though the idea of such a big merger passing regulatory review seems hard to fathom, that’s simply the easy and kneejerk thing to say. Our work suggests it’s plausible.
That’s the extent of the free preview, but Joe Chaill breaks down Keay’s analysis.
At the heart of Keay’s analysis is this assertion–
Though airlines have consolidated to the point where most assume further M&A is unlikely, we still see the possibility of UAL going after JBLU in order for UAL to address its own perceived lack of a sufficient domestic presence.
He notes United President Scott Kirby’s focus on recapturing the domestic market and points out that both Delta and (especially) American Airlines have more domestic capacity than United. Thus, he reasons a merger would catapult United ahead of both carriers and eliminate a pesky and persistent threat. Furthermore, the merger would prohibit American or Delta from making a similar move. Finally, Keay notes that JetBlue’s stock is down while United’s financials have never been better. And of course it would give United a way to return to New York JFK.
How would United and JetBlue avoid anti-trust concerns? A combined United-JetBlue would hold 42% of capacity in the New York City market. But Keay believes that United may be able to convince regulators that Newark should not be counted as New York City: that Kennedy and LaGuardia constitute a separate market than New Jersey.
Why a JetBlue-United Merger Won’t Happen
I never thought U.S. regulators would approve the US Airways – American Airlines merger, so I am not convinced that a United – JetBlue merger would be blocked. Still, I can only imagine U.S. Senator Chuck Schumer grandstanding about what a travesty this merger would be to New Yorkers. More importantly, as Cahill points out, antitrust regulator would undoubtedly require some route divestures that would make the merger far less financially attractive to United. In addition, the climate has changed…Doug Parker just said AA would never be unprofitable again. Mergers are no longer needed to save the domestic airline industry in the United States.
Only 16% of JetBlue’s capacity is to/from United hubs. To me, that doesn’t really address “synergy” concerns that are usually touted as key component of mergers.
I think United will continue to expand domestically, adding flights from its key hubs and rebuilding a robust domestic network without the aid of another airline and a very different work culture.
Maybe Keay just wanted some headlines in publishing this controversial analysis, but I’m not going to lose any sleep over JetBlue and United joining forces. It won’t happen.