Robert Isom has finally responded to Scott Kirby’s public merger fantasy, and while he ruled out United, he left the door open to other deals.
American Airlines CEO Robert Isom reportedly told employees that a merger with United Airlines is off the table, but signaled that other transactions could make sense, including a closer partnership with Alaska Airlines or the acquisition of select Spirit Airlines assets.
That is a far more interesting statement than another round of Scott Kirby talking points.
View From The Wing reports that Isom addressed the recent speculation over industry consolidation at a “State of the Airline” employee meeting and made clear that American has no interest in combining with United.
Here is the key portion of his message:
“But the idea of the world’s two largest airlines getting together and merging is going to be viewed by everybody as anti-competitive. It is not going to be viewed as good for customers. Ultimately, that is bad for the industry and bad for us. What you need to know about the idea of merging with United is that it is a nonstarter. It is not going to happen, and there is absolutely no support for it. We are focused on our business.”
You can’t get clearer than that…
No To United Was The Easy Part
Of course American would publicly reject United.
A merger between the two largest U.S. airlines would face enormous regulatory scrutiny, likely years of litigation, and intense political backlash. It would also place American in the uncomfortable position of admitting it needs to be rescued by a rival.
No CEO is going to volunteer for that publicly. Even if American believed long term consolidation was inevitable, saying yes today would be strategically foolish. But I don’t think, even privately behind closed doors, this is something AA wants.
Isom added:
“You might have read that there was some news about one of our competitors wanting to merge with us. I think it is tied to one of our competitors and what they were interested in doing in Chicago. We all know the motivation in Chicago: to try to run us out of town. They were very vocal about it.
“Fortunately, from a Chicago perspective, I believe we are in a really good position. Nat will talk more about this, but nobody is going to run us out of town. We are going to be able to fly our schedule. I think this idea of merging is probably the same thing: create a distraction and knock American off its game a little bit.”
I get the sense this is what AA believes privately as well…that all of this was a ruse to weaken American Airlines and that the idea truly is outlandish.
Why Alaska Is Interesting
While Isom ruled out a merger with United, he did not rule out a closer partnership with Alaska:
“The second item that has come up is the nature of our relationship with Alaska Airlines. I will reiterate what I have said: Alaska has been a fantastic partner. You need partners in this world to do things you cannot do alone and to provide more customer benefit together. We have had a long relationship. I was part of the discussions with Ben Minicucci from Alaska to bring Alaska into the oneworld partnership. We established the West Coast International Alliance. That has been very positive for our customers and our companies. We are always looking at ways to expand relationships and do more. That will continue.”
Alaska Airlines is smaller, operationally solid, and strategically valuable on the West Coast. It also now includes Hawaiian Airlines, giving it a broader Pacific footprint.
Would regulators allow an American-Alaska combination? I think there would still be an uproar from many elements, but I certainly think it would be easier than United. American remains relatively weak in Seattle, Portland, and parts of the West Coast. Alaska could help solve that overnight.
That said, I don’t think that is the goal versus a closer partnership much like the former Northeast Alliance with JetBlue. Last week, referring to Alaska Airlines, Isom said, “I know they’ve been fiercely independent. We look forward to doing more with Alaska going forward.”
Spirit Assets Make More Sense Than Spirit Itself
Addressing Spirit Airlines, Isom said:
“The last point is that there has been some discussion about Spirit. It is a tough business right now. It is very hard in the airline business when oil prices have run up, and even harder when you are in bankruptcy and oil prices have run up. I want people to know that our business models are not compatible. We are a global premium airline; Spirit is an ultra-low-cost airline.”
The Spirit angle is also logical. Buying Spirit Airlines outright would bring labor issues, fleet complexity, branding baggage, and regulatory headaches…although AA is the butt of jokes about Spirit-like service, the business models, at least now, could not be more different. But buying selected assets is different.
Gates, slots, aircraft, maintenance positions, and airport infrastructure can be highly attractive without inheriting the whole company…that’s what AA recently did in Chicago with two gates.
The whole Spirit situation is a mystery, with the $500 million lifeline from the Trump administration still on very shaky legal grounds. (and I would argue clearly illegal).
> Read More: Trump Administration Prepares $500 Million Spirit Airlines Bailout That Looks Illegal And Leaves Taxpayers On The Hook
American knows it needs to improve its competitive position.
United is ascendant and Delta remains disciplined and highly profitable. Even Southwest is doing better despite its own issues. And of course Alaska Airlines also appears to be managing its merger with Hawaiian Airlines as smoothly as can be expected.
American is undoubtedly making progress, but the question is whether it should do more now, especially during this regulatory period that is so unique that it even emboldened Scott Kirby to float a deal for AA.
That does not mean a transformational merger is imminent with Alaska, but after hearing these comments it is certainly something that is under consideration.
CONCLUSION
Robert Isom was right to dismiss a United merger publicly…that deal would be a political and regulatory nightmare.
But his openness to Alaska or selective Spirit assets shows American is at least thinking creatively about how to close the gap with stronger rivals. AA may not be in a position to move right now in the way United (or Delta) is, but we will see how closely the partnership with Alaska Airlines becomes in the weeks and months ahead.
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