Shares in American Airlines (AAL) jumped about 5% in Monday’s pre-market trading following media reports that rival United Airlines (UAL) recently floated the idea of their business combination in a meeting with U.S. President Donald Trump.
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United Airlines’ shares also rose about 2% during the same period.
Airline Consolidation to Face Intense Scrutiny
United CEO Scott Kirby is said to have pitched the idea during a late February meeting at the White House to discuss the way forward for the beleaguered Washington Dulles International Airport.
Alongside Delta Air Lines (DAL) and Southwest Airlines (LUV), American Airlines and United are two of the four largest commercial carriers in the U.S. and some of the biggest globally. This means that an attempt at a merger — which would create an airline behemoth — will therefore be subjected to intense regulatory scrutiny.
As of early Tuesday, United Airlines has a market capitalization of over $31 billion, while American Airlines is just above $7 billion. While the former operates the largest fleet of aircraft, the latter leads with the most passengers carried and total flights operated.
Airlines ‘Would Have to Peel Off Some of Their Assets’
The revelation comes about a week after Sean Duffy, the U.S. secretary for transportation, told CNBC in an interview that he sees scope for consolidation in the U.S. airline industry. However, the top government official in the same breath also noted that any potential merger would face roadblocks over concerns about the impact on travelers.
Duffy noted that such airlines “would have to peel off some of their assets,” adding that he would not “pre-commit to anything.” He also pointed out that such a merger would require several approvals, including from Trump.
Meanwhile, media reports of the deal come as airlines have been struggling with high jet fuel costs due to supply disruptions from the ongoing conflict in the Middle East. As a remedial action, airlines have started to pass the cost to travelers through higher baggage fees.
Which Is the Best Airline Stock to Buy?
TipRanks’ 10 Top Airline Stocks tool suggests that United Airlines (UAL) currently makes for the best investment. UAL enjoys a Strong Buy consensus rating from analysts and offers about 41% upside based on an average price target of $134.56.
