United CEO Scott Kirby Says “100%” Chance Merger With American Airlines Would Get Approved

United Airlines CEO Scott Kirby says he’s “100%” convinced a merger with American Airlines could get approved. He says he’s even more confident than he was this spring, when news of the talks came out, and he sees getting American to agree as the biggest obstacle. But ‘get approved’ doesn’t mean what he seems to suggest. A friendly Justice Department signing off would still leave any such combination with state attorneys general, foreign governments and two competing sets of international airline partnerships to deal with. Speaking at Yahoo Finance Invest, Kirby said: “It wouldn’t be easy.” “We’d have to do some divestitures, but I 100% think it could get approved.” His argument is that bringing United’s service, technology and operational performance to more passengers would make them better off. He thinks critics misunderstand the deal because they treat airline seats as interchangeable. Contra Kirby, better service is actually a core part of DOJ merger guidelines recognizing quality, innovation and choice. Plus, United service isn’t that good! And while their operations are better than they used to be, they aren’t industry-leading. They’re consistently modestly better than American’s but the difference is hardly vast. Kirby Hasn’t Given Up On The Airline That Fired Him When I covered Kirby’s merger pitch in April, the appeal to United was obvious: American would give them a much bigger New York presence, more strength in Los Angeles, a southeastern hub and a powerful Latin America network. Kirby later said he’d build a Miami hub if he could get 40 or 50 gates. He also wants more at New York JFK than United’s planned return will provide. American rejected merger discussions, arguing that combining the airlines would hurt consumers and competition. Any antitrust case – even at the state level – would just quote American’s own release. As I covered October 31, Kirby described conversations he thought were continuing until American blindsided him with that press release. In any case, American can make investments without being bought. They’ve already made real progress over the past 21 months towards improving their product almost across-the-board. The Justice Department Doesn’t Get The Only Vote I laid out the problems beyond Washington back in April. Getting the administration to support a deal isn’t even close to enough. States can bring their own case. A federal settlement doesn’t bind state attorneys general who aren’t parties to it. Private plaintiffs can sue, too. The Clayton Act allows injunctions against threatened antitrust harm. Closing doesn’t automatically end the risk. The merger notification statute preserves later challenges. Letting the federal waiting period expire isn’t permanent antitrust immunity. He’d Have To Untangle Two Competing Global Networks American and US Airways needed European Commission clearance for their merger. The London–Philadelphia remedy included slots for a competing daily flight. Two U.S. companies combining doesn’t make the transaction solely an American matter. United and American also have joint ventures that let them coordinate prices, schedules and revenue with different foreign airlines. Among those arrangements: Market United’s Partners American’s Partners Atlantic Lufthansa Group and Air Canada British Airways, Iberia, Aer Lingus and Finnair Japan All Nippon Airways Japan Airlines South Pacific Air New Zealand Qantas A combined airline couldn’t assume it could keep these competing arrangements unchanged. Moving American’s flying into United’s partnerships would change the competition analysis. Ending American’s existing deals would also change the connecting traffic and economics Kirby is buying. The Transportation Department’s alliance approvals are another process, separate from Justice Department merger review. And foreign oversight is already an issue: Britain. American’s existing Atlantic partnership already faces slot remedies for London–Boston, London–Chicago and London–Miami, plus protections for London–Dallas passengers. In February, the British competition authority announced approved slot agreements for Delta on Boston and Virgin Atlantic on Miami. Buying American could create new hurdles for either transatlantic joint venture the combined carrier participated in. The European Union would have its own merger review, too. Japan. United and American have separate immunized partnerships with Japan’s two major network airlines. The merger would also raise questions about their scarce Tokyo Haneda access. Japan might not approve a combined American and United in either partnership. Keeping both carriers’ Haneda slots aren’t necessarily in the DOT’s view of the public interest. Australia and New Zealand. Australia renewed the American–Qantas alliance authorization on October 14. New Zealand renewed it in March, and separately authorizes United’s cooperation with Air New Zealand. Combining the American partners in those competing relationships would give both governments new questions to consider regardless of which airline they decided they wanted to keep a partnership with. Canada. United and Air Canada announced an expanded transborder agreement last month and submitted it to Transport Canada for approval. Combining that operation with American’s Canada seems almost impossible on its own. What Would United Have To Give Up? Chicago is the biggest domestic problem. United and American operate competing hubs at O’Hare. New York, Los Angeles and Washington raise challenges as well. United has Newark while American considers the combined LaGuardia and JFK a hub; both airlines have hubs at LAX, and United has a hub at Washington Dulles while American is the dominant carrier at Washington National. And surely American’s debt is a poison pill? It ended September with $29.6 billion in debt and finance leases (without operating leases and pension obligations). The “100% approved” isn’t at all credible, unless he means only at the federal level and because he’s had assurances from the President (who could change his mind!). Topics on this page