American Airlines Rejects Massive Merger Plan with United Airlines, Stock Drops 3% in Pre-Market Trading
American Airlines' stock price declined in pre-market trading on Monday after the company rejected a proposal to negotiate a massive merger with United Airlines over the weekend. The airline issued a statement on Friday after the US stock market closed, denying rumors of a potential transaction between the two carriers.
American Airlines and United Airlines aircraft at Terminal A of Newark Liberty International Airport in Newark, New Jersey on January 12, 2023.
The statement said, "American Airlines has not engaged in any discussions regarding a merger with United Airlines and has no interest in doing so."
The statement added, "While there may be a need for overall adjustments in the aviation market landscape, a merger with United Airlines would be detrimental to market competition and consumer interests, which is contrary to our understanding of this administration's aviation regulatory thinking and antitrust principles."
Affected by this news, American Airlines' stock price fell nearly 3% in pre-market trading on Monday, giving back the gains it had made during the broad market rally on Friday.
As early as February of this year, United Airlines CEO Scott Kirby proposed the idea of merging with competitor American Airlines during a meeting with the Trump administration at the White House. It is understood that United Airlines has been brewing this plan for at least since last autumn.
Kirby said in a January broadcast of the Stratechery podcast, "Greater scale helps us become more competitive in the U.S. outbound market."
He explained that passengers traveling to the Middle East generally prefer to choose local airlines.
“But if we are larger and can offer more choices to these passengers, it will be more reasonable for them to choose our flights when flying to the Middle East.”
If the two airlines were to merge, it would create the world's largest airline, and the plan would therefore face strict regulatory scrutiny, as well as market concerns about the formation of a monopoly.
Currently, American Airlines, United Airlines, Delta Air Lines, and Southwest Airlines already account for approximately 80% of domestic capacity in the United States.
According to aviation data agency OAG, if American Airlines and United Airlines complete the merger, they will collectively account for approximately 40% of the domestic market share in the United States.
U.S. Transportation Secretary Sean Duffy told CNBC's Power Lunch program earlier this month, "President Trump welcomes large deals to close." He added, "There is still room for consolidation in the airline industry."
However, Duffy also pointed out, "If major airlines implement mergers, they must divest some assets. We do not want the U.S. aviation infrastructure to be monopolized by a single airline, as this will affect ticket prices in the long run because the market will lack competition."
George Hay, a law professor at Cornell University, told CNBC in a previous interview bluntly, "This would be the largest merger in history, and I think it is highly unlikely that the court would approve the deal."