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- [00:02]
A
I'm John Ostrower, editor in chief of the Air Current.
- [00:04]
B
I'm Brian Summers and I write the Airline Observer.
- [00:07]
C
And I'm Brett Snyder, author of Cranky Flyer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. All three of us are back together this week, and that's because we have big news. We're excited to announce a merger with Airlines Confidential. No, just. I see Brian shaking his head right now like you're an idiot. It's fine. I'll take it.
- [00:29]
B
We missed your jokes last week, Brett.
- [00:32]
C
I could talk about sheep if you'd prefer.
- [00:34]
A
Commitment to the bit, man. Commitment to the bit.
- [00:36]
C
That's right. No, we are not merging with anyone. But mergers are indeed the topic of the week here. We will stick to those of the airline variety. This is all speculation. I suppose we should just say that up front. I hate speculating too much in public, but there's just no way to ignore this. After Transportation Secretary Sean Duffy said recently how his boss loves these things and the aftermath of those remarks.
- [01:04]
A
Wait a sec. You don't like speculating in public? Why do you have a podcast?
- [01:08]
C
That's fair, guys.
- [01:10]
B
Before we go any further, let's play a clip of Secretary Duffy on CNBC so that everybody knows what we're talking about.
- [01:19]
A
Would you like to see one of the larger airlines buy one of the smaller airlines?
- [01:23]
C
Listen, that's going to come through us.
- [01:24]
A
But also, President Trump, he loves. He loves to see big deals happen. But is there room for some mergers in the aviation industry?
- [01:32]
C
Yeah, I think there is.
- [01:33]
A
Well, that's definitely a strong signal. Look, I think it's interesting because that lumps on top of, like, approval for the acquisition of US Steel by Nippon Steel. And I think we still have to wait and see what happens with the pending Norfolk Southern and Union Pacific merger. Though, to be clear, he didn't say that absolutely everything would be rubber stamped. He did say that he'd review everything that goes across his desk and make case by case. And yes, he did say that some mergers, they would have to peel off some of their assets, as you'd expect. But of course, we should note that Duffy is in charge of the dot. DOJ would have much greater say in any merger anyway. But if this isn't signaling that all merger partners should get in line and Trump is open for business for this, then I don't know what is.
- [02:16]
B
I don't think this is a surprise to anyone, guys. US Airlines have known for a long time that the Trump administration would probably be more open to mergers than the Biden administration. That's probably why we have heard increased chatter on JetBlue lately, although, thank God, not with spirit anymore. I suppose what Secretary Duffy said just confirms that view in the public eye.
- [02:44]
A
I think it's also one thing to keep in mind is that the conventional wisdom is that the Biden administration was terrible for airline mergers. They did agree to let Hawaiian and Alaska merge and no on the NEA between JetBlue and American. So I think it's, you know, it's more of a. More nuanced than I think we give them credit for, but I think that there's definitely a sense that the bar for M and A is far lower than it was in the previous administration.
- [03:12]
C
Yeah, I think that's. That's pretty clearly the case. And a lot of the talk around mergers lately has been about JetBlue. But, man, that is so last month. Instead, we have this week's report from Bloomberg that United has talked about buying American. It is absurd that this is even a real discussion.
- [03:34]
A
I think it's real insofar it's being talked about, like how serious it's been developed from those like political and regulatory trial balloons. That's kind of the unknown question, I would say for background and before Bloomberg News rightfully broke the story on Monday, this was floating on the wind a week ago, and I was very happily on vacation when it first crossed the transom. But it looked somewhat serious when I did first hear about it. I didn't think it would come to the fore this quickly. One thing also not to overlook here is Kirby's tell. Recently, a month ago, in an interview with journalist David Slotnick, Kirby said explicitly, and I quote, we like JetBlue, and I like the partnership with JetBlue. Quote, Almost everything is working, but mergers are big and hard and complicated, and it's not that big, he said of JetBlue, suggesting that there would not be enough benefit to United to make it worth a merger. Quote, we're growing by 120 airplanes a year organically. Well, what's bigger than JetBlue? I think we now know where his head is at.
- [04:39]
C
I mean, I don't know if we're talking market cap, but anyway. Uh, no, I, I do think that it's real, but at least let me put it this way. It's something that I bet Scott believes is a logical outcome. And yes, as many people have already said, it is epic trolling. So that's a nice bonus. But Scott Already has the ear of this administration anyway, and he's clearly trying to go somewhere with this. Is. Is this how he ended up on Katie Miller's podcast?
- [05:07]
B
Brett, for the listeners who may not understand, who is Katie Miller?
- [05:12]
C
Maybe the most patient person in the world, I believe the wife of Stephen Miller. Yes.
- [05:17]
A
President's counselor.
- [05:18]
C
Yeah.
- [05:19]
A
Just a quick point about American. During the pandemic, there was scenario planning going on at both Delta and United for what happened if they folded during the early months of COVID 19. So this is something that they've been thinking about for a long time, whether it's divvying up American and how much cash they had on hand back then, which wasn't that much, and in really kind of where we're at right now. So this has definitely been part of the headset for what Americans trajectory has been in their eyes, epic trolling. Yes. Strategic planning also. Yes. But, you know, looking at all the. All the different wildcards. But look, I also picked up that in Duffy's remarks. Did you catch that? How he said that any evaluation would have to take into account what it means globally? So fundamentally, this is, you know, a question of how the US has the biggest and best airlines competing around the world. And I think that's part of the pitch that Kirby was making in the Oval Office.
- [06:13]
B
Yeah, this is something that Scott Kirby has been talking about for a while. He started with that phrase that they don't seem to use anymore, that United is the flag carrier of the United States, as if the others are not. And then when Scott and I spoke on stage last year at the Apex Expo, you'll remember he talked about how the US Airlines have a trade deficit with foreign carriers, which isn't really a thing. It's not about money. It's not about deficits. But you get the idea. He said that foreign carriers were flying more into the United States than U.S. carriers were flying from U.S. points to foreign points. And I think we all heard that as a message for the federal government. And now it seems like maybe Secretary Duffy and others are listening and spouting it right back. And by the way, putting an emphasis on global impact makes a United American merger seem slightly less insane, I guess. Slightly? Does American still does fly outside the United States, right?
- [07:16]
C
Mostly south, but yes, they do.
- [07:19]
B
And to partner hubs.
- [07:20]
C
Fair enough. Yeah. I mean, Scott, I think you know what you're talking about at the Apex Expo. All this, this is clearly just laying the groundwork. We never quite know exactly what it is he's laying the groundwork for at the time, but it gets there eventually. Despite all this, I still find it ridiculous that this is even a real conversation that anyone is having. But here's what I will say. If you follow Scott's reasoning, you can see how this makes sense in his mind.
- [07:46]
A
Go on.
- [07:47]
C
So we've all heard Scott say there's only room for two premium global network carriers in the U.S. right? That's Delta and that's United. And he's been very outspoken about that. So this means for him there's no place for American there. So what can American do? It's not going to become a low cost carrier. Like it doesn't have many moves, right? It has a losing position in Chicago and New York. It has a more tenuous and, well, slipping position in la. So what if American opted to go more like the Alaska model and try to be more of a regionally dominant carrier in the southern half of the US can cobble together Phoenix, Dallas, Miami, Charlotte and dca. But is that a winning hand?
- [08:26]
B
I don't think so, Brett. And one of the reasons I don't think so is there's a man named Vasu Raja that already tried that. Remember, American was going to fight only where it could win, which was the Sun Belt. And then it realized, hey, not only did we walk away from a lot of corporate revenue in the upper half of the United States and on the coasts, but we also walked away from credit card revenue, which arguably is a worse hit than corporate revenue at this point.
- [08:54]
C
Right? So it's not a winning hand. Vasu tried to kind of fill that gap with partnerships. He had the nea, which at Blue, and then he had this Seattle long haul hub thing with Alaska. Probably better that didn't happen flying to India, but that was how he tried to fill the gaps and it didn't work. Now, if you're Scott Kirby thinking this actually is the best option in a menu of bad options for American and it still doesn't really work, then the next answer is to circle the wagons around the profitable hubs and then sell yourself. Because we know that he comes from a world where consolidation is the answer. If you're not the biggest and the best, to quote the great Ricky Bobby, if you ain't first, you're last.
- [09:33]
A
Okay, total tangent, but a fun fact. If you have the occasion to look down the tailpipe of an F15 that is on display inside the Museum of the US Air Force in Dayton, Ohio, you will actually see a chalk drawing of Ricky Bobby inside the engine. You may need a Flashlight. I'll just say vacation was awesome.
- [09:53]
C
There's always an aviation angle. Is that, is that where we're at here?
- [09:56]
A
Well, we know there always is. So, you know, just, it just compounds on itself. Back from my digression. So let's step beyond this highly unlikely merger and let's examine the chessboard for a moment because I think let's. If you run this fever dream out, you know, what does this look like? Because this isn't one plus one equals two. This is like one plus one equals 1.5. After all the required divestitures, I think it would be genuinely horrible for competition in the U.S. chicago first and foremost. And let's not forget Washington D.C. where United dominates Dulles and American dominates National. There is no use for a Philly hub anymore. And again, who wants a hub in both DFW and Houston? This would be a mess. I mean, taking that one step farther, it would probably blow up one world or star alliance in the process, one or the other, to say nothing of any, any of the transatlantic joint ventures. Like if this passes muster in the US at both the federal and state levels, which it won't, European regulators are going to throw such a fit that it will be stuck in court forever. Hey, do you guys remember when the European Commission approved the Boeing Embraer tie up? Yeah. Because it didn't happen.
- [11:04]
C
I'm not clear how you feel on this, John, so let me.
- [11:08]
A
Hey, facts and data, man. Facts and data.
- [11:10]
C
You do mention the state level. Oh man. You know that Illinois, Texas and Virginia would be some very unlikely partners in trying to have this killed because of what they'd lose in this merger. And that doesn't even take into account states like California, New York, which, you know, they jump into these kind of things all the time just for the general anti competitive nature of stuff. But look, we can poke holes in this all day long. The key to me here and the reason why I think people are probably listening to this though, because we can all poke holes in all this, is having this understanding of how Scott thinks, thinks about this. Because in his mind, American's path to fixing itself is leaving Chicago, as he has very clearly stated, and bailing on New York. So those problems, you know, they'll resolve themselves just by American being run by a competent management team. And I mean that in Scott's eyes also to be clear, DFW versus Houston, look, if there's a choice, it's dfw, home of Scott Kirby, by the way.
- [12:09]
A
It's expensive. Way to have a shorten Your commute.
- [12:12]
C
That's right. And in Washington.
- [12:16]
A
Well, hey, bring back DC Air.
- [12:18]
B
Ah, yes, What a blast of the past that one was. For anyone who doesn't Remember, United and US Airways tried to merge in 2000, and when they did, they proposed spinning off the DC operation into a new airline called DC Air, which would have failed miserably and was going to be owned, I think, by the founder of bet. The turn of a century was wild, guys, wasn't it? But of course, that was before 9 11.
- [12:47]
C
Yeah. The competitive hurdles are insane in a merger like this. Scott has to know that this is a stretch, right? Even for this administration. But forgetting about all the authorities, anything like that, I think he firmly believes this is the best outcome for American.
- [13:05]
A
Yeah, well, either that or for American to merge with Delta. But obviously he doesn't want that either.
- [13:09]
C
Fair.
- [13:10]
B
We've established that travelers would hate this. Of course they would. And politicians would probably also hate it because they hate it when their constituents hate things. This all seems like a non starter. So if Scott knows it's a stretch, why is he even saying like this in private? And of course he knows it's gonna leak.
- [13:32]
C
Yeah, it may sound like it sometimes, but we all know Scott doesn't just say things off the top of his head. He's calculating. And there is a reason here. This isn't just about poking a stick in American CEO Robert Isom's eye, though.
- [13:46]
A
I think that's a nice side benefit. You can't underestimate the degree to which Scott Kirby runs on a degree of spite and math.
- [13:52]
C
Okay, spite and math together at last. But there's no doubt he enjoys this. Right, but I can't imagine him saying this just for that reason. You know, I was talking to a friend right after the news broke, trying to parse the message, and I think he might be onto something. He thinks it's. It's actually about JetBlue.
- [14:14]
B
Brett, can you explain to us how you got there?
- [14:17]
C
Yeah, sure. So we all know, in a world where murderers can easily clear regulatory scrutiny, JetBlue is one of the prizes. And by prize, I mean here's all your debt. Congratulations. But, you know, yes, JetBlue has a lot of debt on the books, which does make it less appealing, but it has important positions in jfk, Boston, Fort Lauderd. United would have an interest in every single one of those places, I'm sure.
- [14:43]
B
Brett, now you're sounding a little more realistic. In the past, I think JFK would have been laughable because of the overlap with Newark. But in this world today, maybe that's a smaller issue. Throw out some slots, give them up to others, and maybe you've got a deal. Of course, as we talked about in the beginning of the program, Kirby keeps saying that he doesn't want to buy JetBlue. I do think it's much more likely that he might want its assets or part of its assets.
- [15:16]
C
Look, yes, he can say he doesn't want JetBlue, but if mergers are on the table for a limited time, he might change his tune. If you could get JFK without having to divest too much, and you could pull in Fort Lauderdale right around the time that spirit fails, ooh, you've got a hub in South Florida. So if United's actually looking seriously at JetBlue in this climate, then why not talk about a much bigger merger and more problematic merger, I should add, with American, you can reframe the discussion so that a United merger with JetBlue then sounds downright minor. And to be clear, I don't think this is a bluff. I have no doubt Scott would love to buy American. This floats that trial balloon. And when the balloon bursts, assuming it does burst, JetBlue is still there.
- [16:01]
A
I think you're absolutely right. And I think that the trial balloon has a smaller balloon inside of it. Right. Once the crazy balloon pops, it's like, oh, that's a more reasonable looking balloon. Let's do that in. JetBlue has reportedly already put itself in play. Emphasis on reportedly. There was that report that they had hired advisors to evaluate being acquired by United, Alaska or Southwest. Though my reporting suggests that may not be as solid as it looks.
- [16:27]
B
Perhaps not, John, but it was out there. And I should note that American was not on the this list, which is kind of surprising if it's the final list, which it might not be, because is anything final these days?
- [16:44]
C
I'm sorry, I'm still just trying to get my head around the trial balloon. Inside the trial balloon. Like is, are they smuggling drugs in the trial? Oh, if they are, this is perfect. They're ready for a South Florida hub.
- [16:54]
A
Yeah, the Russian nesting doll of M. And a strategy.
- [16:59]
B
Yeah, we are offending people left and right today.
- [17:02]
C
For the record, I'm always okay offending Floridians just out there publicly with that. So I. I don't know that anything will actually happen with JetBlue. I'm far from sold on that. But the antitrust issues are far less with an Alaska or a Southwest. I mean, hell, Alaska and JetBlue barely overlap at all. And Southwest doesn't have much outside of Fort Lauderdale. It doesn't even have much there anymore after moving its Latin hub up to Orlando.
- [17:29]
A
Yeah, remember, JetBlue is already gun shy when it comes to antitrust approval. Look, got burned on Spirit, arguably because his plan was bad and its messaging was not great. But you have to think that if JetBlue was evaluating partners, it would be very concerned about the airline with the highest overlap, and that's United.
- [17:47]
B
So if United can make JetBlue feel comfortable, maybe by paving the way with the feds in this very public conversation about consequential mergers, maybe that helps push something through. Very smart, Brett. I think that's the first time I've said that about you.
- [18:05]
C
Oh, I know. There's a little. Little too much love here today. Just not for Florida, but everywhere else,
- [18:13]
A
the irony is we actually really like each other.
- [18:15]
C
It's true. It's.
- [18:16]
A
It's the bit that we don't like each other or that we're sort of like.
- [18:21]
B
That's.
- [18:21]
A
That's the longest running bit of them all.
- [18:24]
B
Do people actually think that we're like brothers?
- [18:26]
C
Send us an email. Go to theairshow podcast.com and let us know if you think this is real or not.
- [18:33]
A
If you want to sponsor our group therapy sessions for.
- [18:37]
C
We need an underwriter for group therapy. This is. Please come in, people. So where were we?
- [18:44]
A
Airlines. We're talking about aviation.
- [18:46]
C
Oh, yeah.
- [18:46]
A
Business of the sky, remember?
- [18:47]
C
Yeah, I got it. Okay. Yeah, look, this is all possible. Again, wild speculation, as we warned in the beginning, but I'm just trying to make sense of the various pieces of news that we have on this table here.
- [19:00]
B
Can I get one more dig in against you, Brett? Is that okay, or are we being too mean?
- [19:04]
A
Bring it.
- [19:05]
C
What? No, you're being too nice. Somebody needs to stop this.
- [19:09]
B
No, I would just say that JetBlue, United. It probably makes a lot more sense than sun country buying Spirit for its Detroit hub.
- [19:16]
C
How dare you.
- [19:18]
A
Okay, but do you guys think this is actually the best merger for JetBlue?
- [19:23]
C
We don't know of any potential financials or anything, but from a commercial perspective, I think there are arguments that could be made for any of the rumored mergers. As could one with American, certainly. But, hell, if we're dreaming big, have Alaska buy American. Ange Blue. Then you got a powerhouse. Here we go.
- [19:39]
B
I don't know why nobody is talking about my preferred merger. I've said it before on the show. Alaska buying American. American immediately gets a better, very competent CEO. American also gets a Nice Seattle hub to get to Asia and Oceania. I just think that Ben Minicucci could do something there. He's a guy that thinks long term. I know Scott Kirby says American is dead forever. I still think with the right management, it can turn things around. We were not podcasters 20 years ago, but could you imagine what we were saying then or what we would have been saying then about United and Delta? They were, they were pretty, pretty dead back then. I know we spent a lot of time on this podcast talking about JetBlue and there's some idea about JetBlue maybe in Alaska. I don't like. That deal would create like a barbell network, right? I don't know if that works. Let's talk maybe on another podcast about Alaska and American. Let's make it happen.
- [20:46]
A
Let's do it.
- [20:46]
C
Hey, that's fine by me. And I think we all know that when management teams don't know what to do, they look for mergers, right? It's a time honored tradition. Robin Hayes the The problem is Both Alaska and JetBlue seem to know what they need to do. American does not, at least publicly. But if the opportunity presented itself, I'd have to think Alaska would prefer something like American than stapling JetBlue on, as you said, a new project, Barbell Brian with the east and west coast represented.
- [21:18]
B
How'd that work for US Airways?
- [21:20]
C
It actually worked really well for US Airways. Honestly, at the time it was, it was huge. But then again, they took over a US Airways that was in dire straits and remade the thing in bankruptcy and completely. Anyway, we don't need to go into that history. But it did work fine for them. But it doesn't get the same. As much as I hate the word synergies that you get there, the one thing it does do though is it does help Alaska with the loyalty credit card angle because then you get New York and Boston and so there it is, a different game than it was 20 years ago. Right. So there is something to think about with that. But an American merger, that's a completely different story and is very interesting on many levels.
- [22:02]
A
So boiling this all down, number one, it signals to the world that American is a serious takeover candidate and further weakens their strategic position, at least in terms of how people are feeling about them. And number two, probably more importantly, just laid the groundwork for floating a much smaller acquisition for any other player. Also, that ultimately sounds considerably less insane than American and United getting together.
- [22:29]
C
Well, see now why do we even need to have this podcast that you just did in like 30 seconds. Everyone tldr here.
- [22:35]
B
Since we're essentially making part of this up by coming up with new combinations. What others you think we might see? Breeze and JetBlue maybe. Anyone else want to throw anything out there?
- [22:50]
A
Well, look, when I asked Tom doxy about the A220, there was, you know, just tiptoe along the path for Southwest and Breeze. I mean, is it really that hard to see?
- [23:00]
C
I mean, everything is on the table.
- [23:03]
B
Unfortunately, David Nealman is not so driven by spite as Scott Kirby. And even though he got semi fired from Southwest however many years ago, I don't think he has the same yen to go in there and buy the company.
- [23:15]
C
I think it still hurts. I think it's a powerful drug. But look, if United and American is being floated, then what isn't out there in Cape Air can buy Surf Air, which already owns Southern Areas Express, Mokulele, Grand Caravan, Powerhouse. Here we go, guys. But seriously, I don't think there are that many moves left to make here. A Legion and breeze. Breeze and JetBlue sure. Always seems possible. Pan Am and TWA now. Guess I'm a little late for that last one, though. Forty years ago, that could have been as crazy as United, American, right?
- [23:51]
B
I guess the point here is that anything is on the table and maybe some airlines won't do the most rational thing. They all know that there's a. Hopefully a relatively short window if we want to talk politics where it might be easier to push through a merger.
- [24:08]
C
And.
- [24:08]
B
And I think it's possible that airlines will use that time period to manufacture something. That maybe. Sounds wild.
- [24:14]
A
I vote for just stepping back for a second. I think we might be missing the forest for the trees here. Like US Airlines fundamentally are running out of ways to grow organically. Like, there's a crap ton of constraints here that are more aggressively guiding the industry than I think we're actually acknowledging here. Like no new runways, only a few new gates here and there, an ATC system incapable of handling the planes it has now, and new airplanes are still scarce. Look, there is a serious strategic reality being signaled here in Kirby's trial balloon that I think we also need to be watching for.
- [24:50]
C
You've been listening to the air show. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast or John and Brian and my group therapy, go to our website theairshowpodcast.com to get in touch.
- [25:04]
B
Leo Duran produced and edited this episode. Our theme music is by Joshua Moser. Thanks for listening. And we'll be back soon.