Rumors are swirling that Southwest Airlines may solve its lingering Boeing 737 MAX problem by acquiring another airline. I just don’t see it happening.
The theory goes something like this. Southwest has over 100 737 MAX on order, with growth plans built around that aircraft. As the 737 MAX problems continue and Southwest is forced to cancel an increasing number of flights (as more deliveries are deferred), the financial implications grow.
With no end in sight to the grounding and other airlines like Delta (which has none) and United (which has a more agile fleet) stepping into fill the void, Southwest is losing market share. Problematically for Southwest, the eventual re-certification of the 737 MAX may not re-balance the current trajectory. Thus, Southwest will merge or acquire another carrier in order to stem the flow to its competition. With a complementary narrowbody feet, Alaska Airlines and JetBlue are best positioned to absorb or be absorbed by Southwest.
Fearing this, Stifel, a major investment banking firm, downgraded Southwest yesterday with the following warning:
An acquisition by Southwest motivated by a desire to diversify away from the Max creates significant risks in the near term for LUV…
If Boeing announces further MAX return-of-service delays and/or a 737 MAX rate cut, that would increase risk to Southwest of a multi-year constraint on its capacity.
At some point, that risk becomes strategically unacceptable to Southwest. We believe we’re getting closer to that point and could arrive there if reports about a MAX production cut materialize.
Southwest Merger Is Not Realistic
The idea that Southwest would merge with JetBlue or Alaska is fanciful at best and delusional at worst. At nearly every level, the business models of JetBlue and Alaska are different than Southwest’s. From a single cabin of service to free checked baggage to no redeyes to an aversion to aircraft diversity, Southwest is a lone star airline that dances to the beat of a different drum. Its style and company profile do not present any viable merger candidates in the United States.
If you want to talk mergers, let’s talk about Alaska and JetBlue…now there is a merger that seems possible. But Southwest and Alaska or JetBlue? I simply cannot see it happening.
Do you see any possibility of merger between Southwest and Alaska or JetBlue?