United Airlines sees major merger as unlikely after American's denial

United Airlines remains open to buying airport slots, gates or other assets if higher fuel prices pressure weaker competitors, but it is unlikely to seek a major consolidation deal after its failed bid to American Airlines, Chief Executive Scott Kirby told Reuters on Sunday (7).

Kirby said in April that American declined to get involved after he approached it about a merger, an idea Reuters said he raised with U.S. President Donald Trump in February. American Chief Executive Robert Isom rejected a union as anti-competitive and bad for customers.

"I think consolidation is unlikely for United," Kirby said in an interview during the International Air Transport Association's annual meeting in Rio de Janeiro. "That doesn't mean we won't be in the market to buy assets, but consolidation is a low probability."

Merger needs management support
Kirby defended the rationale for a deal with American, saying he believed it would have benefited consumers. But he said such a large and unconventional transaction could not be completed without the support of American's board of directors.

The United boss said he believed worker groups, shareholders and customers would have supported the deal. But public opposition from American's board made the transaction unworkable, he said. "You can't have the management team go on record saying it was anti-competitive," Kirby said.

Asked whether United had backed out of American or might revive the idea later, Kirby repeatedly said that any deal would require "a willing partner."

He also denied that United had discussed with the Trump administration the possibility of giving the U.S. government a golden share as part of any proposed merger.

Higher fuel prices are testing airline margins and widening the divide between big carriers with stronger brands and weaker competitors with less pricing power.

Kirby said United hopes the higher fares will put it on track to recoup the full impact of rising fuel prices later this year, underscoring the airline's confidence in demand despite rising ticket prices. He said demand has remained strong, although United expects the higher fares will eventually have some impact.

Brand-loyal airlines come out ahead
Several airline executives said the fuel shock is separating stronger airlines from weaker airlines. Kirby framed the divide as being between airlines with customer loyalty and those that still compete primarily on price.

He dismissed criticism from Willie Walsh, head of the International Air Transport Association, that major U.S. airlines are squeezing out competition. Kirby said United and Delta Air Lines are winning because they have invested in brands and products that travelers value.

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"Customers care about the technology, the service, the reliability, the product," Kirby said. "They want a great experience. They don't just want a seat. Kirby added that United's advantage is less its balance sheet than its operating profit, which allows the airline to continue investing while some similar-sized rivals are just breaking even."

Asked whether JetBlue Airways would become more attractive to United if it entered Chapter 11, a financial restructuring process, Kirby said he thought that scenario was unlikely, citing JetBlue's free cash and assets.

He also dismissed fuel hedging as a structural response to the sector's exposure to volatile fuel costs, saying it is "ineffective if you lose money over time."

While he acknowledged that the Delta refinery is helping in the current environment, Kirby said United is not interested in following its North American rival's example by purchasing a refinery.

Source: CNN