Former United CEO Reveals Investors Are Circling Cheap U.S. Airlines — A Deal Could Be Coming Soon

Former United Airlines CEO Oscar Munoz drops the word on this week’s Airlines Confidential that he’s been talking to outside investors about buying U.S. airlines, and he thinks a deal could be coming soon after this month’s earnings releases are all out. On last week’s episode, former Wall Street Journal airlines reporter Scott McCartney suggested that depressed U.S. airline valuations could attract private equity or activist investors, specifically calling out Alaska Airlines, American, and JetBlue as potential targets. I’m skeptical of JetBlue given their debt loads, for the reasons current United CEO Scott Kirby outlined. McCartney pointed out, “The restaurant chain Texas Roadhouse is worth more than American Airlines right now.” “Delta isn’t five times the size of American … but Delta is worth five times more than American in the stock market.” Of course, airline stocks have low multiples because they aren’t expected to generate rising rates of return. They’re capital intensive, heavily unionzed, highly regulated businesses with limited growth potential. And Delta has a much higher market cap because it makes money and American Airlines largely does not, and the market expects that status quo to continue. Investing in airlines is tough for any long period of time. Making money in the sector usually involves short-term plays. In this week’s episode, Munoz revealed that he helped Southwest Airlines management frame its reponse to activist investor Elliott. You really can’t spreadsheet your way to a great airline. And again, the Elliott conversation at Southwest—and I was tangentially involved with management there on how to frame this—I wrote a big article about this… Operational excellence has to become a financial strategy as well. Interestingly, Munoz’s August 2024 Fortune essay defending Bob Jordan and criticizing Elliott’s approach identified him simply as United’s former CEO. It did not disclose that he was working with Southwest management. The airline subsequently quoted that essay in proxy materials, although the filing said permission to use the quoted endorsements was neither sought nor obtained. Now, Munoz flags that investor “activity” is occurring and predicts more “noise.” There’s been a lot of activity—I’ll just say that—and there’s conversations… sophisticated investors who largely ignored airlines, for all the obvious reasons, are suddenly paying attention. …I suspect you might see some additional noise here probably fairly soon, especially after these earnings are announced… There is a lot of money out there still looking for outlets, and this could be one. So the former CEO of United, who is talking with investors, says we’ll see outside money re-enter the industry soon. That could be a significant stake in a carrier, like with what happened at Southwest. It might be a take-private offer of an airline that’s seen as ‘cheap’ (like American). Or it could be something less interesting. The problem is that airline turnarounds generally have long time horizons – given capital spending and governments involved. There aren’t really other Southwests out there where you can load up an investment grade balance sheet with debt to fund share buybacks, or make significant tweaks to the business model and roll out layoffs for a short-term goose to the stock. Berkshire Hathaway had to wait until Warren Buffett retired before coming back into the airline industry in a big way for a reason. Buffet learned multiple times during his career that airlines aren’t investable for the long term. He famously quoted Richard Branson in his 1996 investor letter that the easiest way to become a millionaire quickly is to “Start as a billionaire and then buy an airline.” Indeed, in 2007, reflecting on how bad an investment airlines are, Buffet wrote that a “farsighted capitalist” should have done humanity a favor by shooting Orville Wright down at Kitty Hawk. We know of course that JetBlue has engaged with outside advisors to explore deals with other airlines. United’s Scott Kirby talked to the President about buying American Airlines and has admitted talking with airlines about buying assets. And American’s CEO has spoken with Alaska about making a deal. Topics on this page