United–American Merger Talk: Scale, Power, and Fares

Some media already call it the “honeymoon of the elephants”: United Airlines and American Airlines joining forces to become the biggest airline in the world. For now, this is just an unconfirmed rumor with plenty of (antitrust) obstacles and showstoppers until we actually see it done. Or are we witnessing a reignited round of consolidation in the US airline industry? Bloomberg brought the news on Tuesday that United CEO Scott Kirby had “floated” the idea of a merger with American Airlines in a meeting with President Trump in February. The press agency referred to anonymous sources. United and American have not commented. What is the logic behind a merger of the two US giants? The most obvious is that United would like to remove a main rival from the market, a rival that is financially weaker and therefore potentially easy prey. Comparing results Comparing results for the past three years, United reported revenues between $53 and $59 billion, versus around $52 to $54 billion for American. While operating expenses are not that dissimilar, United’s operating income has been significantly higher: $4.2 billion in 2023, $5.1 billion in 2024, and $4.7 billion last year, compared to $3.0 billion for American in 2023, $2.6 billion in 2024, and $1.5 billion in 2025. United grew its net income over three years from $2.6 billion to $3.4 billion, while American fell from $822 million to just $111 million last year. United reported a pre-tax margin of 7.8 percent last year, compared with just 2.7 percent for American. The overall consensus is that American has lost out to United and Delta Air Lines, mainly because it was late to the market with premium products, although it is catching up on the Boeing 787-9, Airbus A321XLR, and as a retrofit on older 777s. The difference between the carriers is also evident in two charts in the 10-K documents, which depict stock performance and cumulative total returns. Assuming a $100 investment in common stock, United’s return stayed flat until 2023, but soared to $250 until December 31 last year. Americans’ return peaked in 2021 at $114 but had fallen to just $97 by the end of 2025. Basic and diluted EPS at American were a meager $0.17 cents, United’s diluted EPS stood at $10.20! Total debt, including leases, stood at $31 billion at United and at $29 billion at American. The latter stated in the risk paragraph of its 2025 10-K filing that the company requires significant financing to support its fleet, improve customer experience, update facilities, and staff. [caption id="attachment_190427" align="aligncenter" width="449"] American Boeing 737-800[/caption] “We estimate that, based on our commitments as of December 31, 2025, our planned aggregate expenditures for aircraft purchase commitments and certain engines on a consolidated basis for calendar years 2026 through 2030 would be approximately $17.5 billion. We may also require financing to refinance maturing obligations and to provide liquidity to fund other corporate requirements. Accordingly, we will need substantial liquidity, financing, or other capital resources to finance such aircraft and engines and meet such other liquidity needs. It may be difficult for us to raise additional capital on acceptable terms, or at all, due to, among other factors: our substantial level of existing indebtedness; our non-investment grade corporate credit rating; volatile or otherwise unfavorable market conditions; and the availability of corporate assets to use as collateral for loans or other indebtedness.” Last November, American announced job cuts of management and support roles at its Fort Worth headquarters, on the back of a $114 million loss in Q3. While limited at first, the layoff sounded the alarm among staff, as the airline could be reducing its workforce by up to 6,500. That would be the biggest reduction since Covid in 2020. Another concern with staff is that American is transferring departments to low-cost countries, notably India. United Next United acknowledged that it is exposed to its own risks, including those of its United Next growth strategy and outstanding orders for 630 aircraft. “In addition, due to the Company's substantial amount of debt, there are certain limitations on the Company's business development capacity. Further, pursuing these opportunities may require us to obtain additional equity or debt financing and could result in increased leverage and/or a downgrade of our credit ratings.” But overall, Scott Kirby’s United has a more solid financial position than Robert Isom’s American. [caption id="attachment_70028" align="aligncenter" width="530"] Boeing and United Airlines Order scaled[/caption] United and its subsidiaries have a fleet of 1.066 aircraft as of December 31, of which 958 are owned, and 108 are leased, with 634 aircraft on order. American has 1,013 aircraft, including 547 owned, 466 leased, and 383 on order. Both airlines are executing significant cabin upgrades, focused on capturing market share in the premium segment. United claims to have the most comprehensive network of all North American airlines, covering 350+ destinations on which it carried 181 million passengers last year. But American says it also serves over 350 destinations and carried over 200 million passengers in 2025. American employs around 130.000 people compared to 107.300 at United. Capacity United and American are constantly fighting to increase market share. This month, United added 1.2 million seats to the market compared with April last year, AOG said. This capacity mainly goes to Latin America and Europe, plus more frequencies to Europe. United dominates at Chicago O’Hare and at Newark. American has grown seats by 678K in April and continues to build capacity and frequencies to the Caribbean and Latin America, while also adding leisure capacity to Europe. American is the dominant player at Dallas-Fort Worth and in Miami. At DFW, 82 percent of all annual passengers fly on American. [caption id="attachment_190434" align="aligncenter" width="580"] US DOT[/caption] Market Perspective The US is the most mature large-scale air travel market. Its airlines are among the biggest in the world. The chart above shows the ASM share; the chart below shows the combined AA/UA. [caption id="attachment_190437" align="aligncenter" width="580"] AirInsight[/caption] The arrow highlights who “loses” with such a merger – it’s the “rest of the industry.” Not Southwest or Delta. Indeed, Delta and Southwest must acquire the best among the rest to scale up to match a potential AA/UA. This is an industry that chases economies of scale because it helps drive seat costs down. But more importantly, it drives up revenues as fewer competitors shift from aggressive price competition to the stability of a duopoly. Economics teaches us that the first thing to go in a duopoly is price competition. The players realize that price competition hurts both of them, so, without any formal agreement, they tacitly refrain from competing on price. In doing so, there is a move of economic power from the buyer to the seller. Indeed, we already see it now with Delta. The airline announced its first quarterly loss in several years. Delta’s reaction? Not going about fixing its cost structure. Rather, it announced fare increases and reduced capacity. This is a signal from an airline that it is confident of high load factors and is not under pressure to improve its cost structure. This is what happens before any massive merger. What do you suppose would happen after a massive merger? Airfares in the US would rise to levels not seen before. The industry's economics would be such that new entrants would face insurmountable barriers. The only cure to break this pricing power is cabotage. Too big? A combined airline with a fleet of 2,100+ aircraft (excluding future deliveries), around $110 million in revenues, 247.000 employees, a network to hundreds of destinations, and a market share of around 40 percent sounds compelling. But will it be too big? What is in it for the shareholders? But more importantly, what is it for the consumer? Will a combination of United and American become too dominant? And what is the benefit of anticompetitive regulators in the US, Europe, and other regions that will demand significant remedies? Recent history shows that the consumer perspective is weighing heavily in regulatory approval decisions, as evidenced by the 2023 ruling on the Northeast Alliance between American and JetBlue and the 2024 blocking of the Spirit Airlines/JetBlue merger. In both cases, the Department of Justice ruled that the combined airlines would become too dominant, denying customers free choice and risking higher airfares. JetBlue vehemently denied this and stated that the “JetBlue-effect” has resulted in lower fares and more competition wherever the low-cost airline entered the market. But that was under a different administration. [caption id="attachment_90911" align="aligncenter" width="527"] image: United Air Lines[/caption] CNBC quoted Cowen analyst Ted Fitzgerald, who calculated that American and United compete on 289 routes and will likely have to divest a fair share of that if they want to get antitrust approval. That is a significant portion of the 350+ routes operated by the two airlines. Giving up even a small part of the routes will hurt either party, so you can question which benefit they are pursuing by giving up capacity and revenue. American’s stock rose about 8 percent on Tuesday, compared with 2.8 percent for United, suggesting that AAL shareholders seem to like the idea of a takeover or merger. So far, there has been absolute silence from the boardrooms of the two companies, while the US Department of Transportation hasn’t officially responded. Yet, Secretary Sean Duffy indicated in an interview with CNBC last week that he thinks that there is room for some mergers in the US airline industry. Most were considering JetBlue, Southwest, or Frontier as potential candidates, following up on the Allegiant/Sun County merger earlier this year. Not of United and American. It might just be that Scott Kirby wishes to set something in motion by pitching a merger to a president who likes big deals so much. Expect some strong opposition and, maybe, a counterattack from Delta Air Lines and Southwest Airlines.

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