Make of these remarks what you will, but I genuinely believe things could escalate in the imminent future…
On CNBC today, U.S. Transportation Secretary Sean Duffy was queried regarding the increasing speculation about one of the “big four” U.S. carriers possibly acquiring another airline. This specifically related to the fact that the majority of the industry’s profits are concentrated with two airlines, compounded by the unfavorable oil price situation for carriers.
Here’s Duffy’s response:
“That’s going to come through us, but also President Trump is keen on seeing significant deals materialize, he will have to review any such deal, it needs to go through DOJ, it’ll come to DOT. I think, who knows who’s going to align, right? There’s always talk, but is there space for mergers within the aviation sector? Yeah, I think there is.”
He was then interrupted to clarify that this pertained to consolidation within the United States, and he proceeded with:
Yeah, yeah, I think so. Again, there’s a lot of discussion, and numerous individuals contemplating what that should resemble. I’m going to observe, is there a proposal that’s presented, how does it appear, what effect does it have on competition, what will it mean for consumers, what will it do to ensure we remain competitive globally, to guarantee we have the largest and finest airlines contending on a worldwide scale.”
He was subsequently asked a follow-up question regarding market share:
“But what if that implies one of the airlines no longer possesses 20%, with the big four each around a 20% market share, what if they surge to 30%, 35%, would you accept that?”
He then replied as follows:
“We’d need to analyze it on a case-by-case basis, and if there was a merger between some of the larger airlines, they would have to divest some of their assets; we don’t want to have this overwhelming infrastructure centered on one airline in America.”
Admittedly, Duffy isn’t the ultimate authority when it comes to deciding whether an airline merger gets the green light. So individuals can ascertain for themselves whether he is merely expressing his personal views, or reflecting discussions he has had with Trump.
My impression from the above is certainly that Duffy is quite receptive to consolidation, even if it involves one of the “big four” U.S. carriers, with the stipulation that some concessions might be required.
It seems very likely that if there were any consolidation efforts in the near future, they would involve JetBlue, as the airline is reportedly exploring acquisition possibilities. JetBlue is known for an excellent passenger experience and could provide significant value to another airline group, but it appears set to struggle based on its current circumstances (JFK is just not an ideal airport for primarily operating domestic flights).
JetBlue, in this context, would offer substantial value as part of a larger airline group, like being part of American or United. United CEO Scott Kirby has not been secretive about his interest in acquiring JetBlue, although he sometimes sends mixed signals (one day he’ll indicate that “the ball is going to be in JetBlue’s court” regarding a merger, and the next he’ll express a lack of interest in a merger).
I do have to think that this is going to become intriguing very soon. If United is keen on acquiring JetBlue, or at least wants to ensure that no rival secures JetBlue’s crucial assets, then I believe this is the moment to act:
– Kirby has been very pro-Trump, and is certainly voicing the right sentiments to court his favor
– From a regulatory perspective, it appears there’s no better time than now, since there likely would be minimal regulatory scrutiny prior to the midterms
– The surge in oil prices seems to present the perfect occasion for an airline to argue that a merger is now a question of survival more than anything else
I’m unsure how this will unfold. I believe this is too much for Alaska to manage at the moment, considering it’s still merging with Hawaiian. I think a Southwest merger makes almost no sense. I know United is somewhat desperate for JetBlue, despite my skepticism regarding the fixation with JFK. But truly, I think American needs JetBlue more than any other airline, and it would be the most consumer-friendly deal. The challenge lies in American’s poor financial standing.
So we’ll see if anything materializes. I’m beginning to think that we’re nearing the point where something ought to happen soon, and if it doesn’t, then I believe it signals that no agreement will occur with JetBlue.
So, will something transpire concerning JetBlue shortly?
Bottom line
Transportation Secretary Sean Duffy was