An “influential” Wall Street analyst is asserting that a merger between JetBlue and United is more likely than you might think. I am not convinced…
In paywall-protected analysis, Hunter Keay of the Wolfe Research has opined–
A few investors recently asked us about further M&A in airlines, and the idea of UAL+JBLU came up. Though the idea of such a big merger passing regulatory review seems hard to fathom, that’s simply the easy and kneejerk thing to say. Our work suggests it’s plausible.
That’s the extent of the free preview, but Joe Chaill breaks down Keay’s analysis.
At the heart of Keay’s analysis is this assertion–
Though airlines have consolidated to the point where most assume further M&A is unlikely, we still see the possibility of UAL going after JBLU in order for UAL to address its own perceived lack of a sufficient domestic presence.
He notes United President Scott Kirby’s focus on recapturing the domestic market and points out that both Delta and (especially) American Airlines have more domestic capacity than United. Thus, he reasons a merger would catapult United ahead of both carriers and eliminate a pesky and persistent threat. Furthermore, the merger would prohibit American or Delta from making a similar move. Finally, Keay notes that JetBlue’s stock is down while United’s financials have never been better. And of course it would give United a way to return to New York JFK.
> Read More: United Cuts International Routes, Will Focus on Domestic Travel
How would United and JetBlue avoid anti-trust concerns? A combined United-JetBlue would hold 42% of capacity in the New York City market. But Keay believes that United may be able to convince regulators that Newark should not be counted as New York City: that Kennedy and LaGuardia constitute a separate market than New Jersey.
Why a JetBlue-United Merger Won’t Happen
I never thought U.S. regulators would approve the US Airways – American Airlines merger, so I am not convinced that a United – JetBlue merger would be blocked. Still, I can only imagine U.S. Senator Chuck Schumer grandstanding about what a travesty this merger would be to New Yorkers. More importantly, as Cahill points out, antitrust regulator would undoubtedly require some route divestures that would make the merger far less financially attractive to United. In addition, the climate has changed…Doug Parker just said AA would never be unprofitable again. Mergers are no longer needed to save the domestic airline industry in the United States.
Only 16% of JetBlue’s capacity is to/from United hubs. To me, that doesn’t really address “synergy” concerns that are usually touted as key component of mergers.
I think United will continue to expand domestically, adding flights from its key hubs and rebuilding a robust domestic network without the aid of another airline and a very different work culture.
CONCLUSION
Maybe Keay just wanted some headlines in publishing this controversial analysis, but I’m not going to lose any sleep over JetBlue and United joining forces. It won’t happen.
Not buying it either.
The 16% while not being great for synergy, is a great number to get the regulatory approval.
16% is rather surprising, but does that include city areas – i.e. EWR/JFK and LAX/LGB?
I guess United would pick up a good JFK presence (not sure what that is really worth to them with EWR), the gaping hole for UA that is South Florida, and BOS. Rather than paying a multiple for JetBlue, UA could spend the same money on a fare war and just enter more markets organically. Florida and Boston are not restricted markets. I just don’t see the big gain for UA — they can get planes and crews without JetBlue, and the move would likely strengthen Delta more than anything. Synergies in reducing JB’s small corporate staff and some airport overlap are not enough to justify paying a JetBlue valuation. Taking out a competitor might be, but the loss of focus and integration challenges don’t seem like the lowest hanging fruit.
Seems like a good way to light shareholder value on fire and cause further customer outrage…
Ok, I read the analysis. Not gonna happen.
When Doug Parker got his hands on American, there was some belief that the US merger was necessary to compete domestically against the merged UA/CO.
The world has changed since then. The FAA seems to clearly be favoring building up alternate carriers to compete against the big 4. Look at the 2012 assignment of new slots into Washington National as one example.
As for treating Newark as separate from NYC, don’t make me laugh. UA voluntarily made the idiotic decision to leave JFK for Newark. the FAA isn’t going to let them buy Jetblue as some sort of do over.
My guess is United wants to get rid of JetBlue because of their better on-board product, their low transcontinental business fares, their support of the ME3, etc. JetBlue is raising the competition standards, and I’m sure the big US3 don’t like it at all. If they could eliminate JetBlue, they would as quickly as possible. This is probably another unfriendly move to flyers.
If this happens, I will shoot myself in the head.
Don’t do that!
Just what United needs- more labor problems. Besides the CO UA merger is STILL not complete.
I knew this was going to be Hunter Keay from the headline before I even clicked on the article …
the headaches at NYC will far outweigh any benefits that bring along the BOS corporate market and some semblance of a Caribbean hub (FLL).
Looking at the trailing-12m pax numbers ending in Aug 2017 (latest ones published by PANYNJ), their NYC presence doesn’t help each other at all :
LGA : UA 8.7%, B6 4.5%, new entity 13.2%, some divestiture concessions, nothing major
JFK : B6 23.2%, UA 0.0%, zero gain, new entity 23.2%
EWR : UA 67.0%, B6 5.1%, new entity 72.1%, most likely tons of forced divestitures here
Combined (including rounding errors from SWF and ACY) :
UA 23.7%, B6 13.1%, new entity 36.8% (next competitor down is DL at 22.8%)
This new frankenstein would have a hub-and-a-half in the NYC area while providing nearly no synergy between the 2.
Hunter Keay, aka fly18725 at FlyerTalk, back at it again w/genius “analysis”
This is the same clown who basically said “product doesn’t matter, it’s all about schedule” that Jeff $misek listened to and ruined the combined airline for a few years
Thanks for the timely topic. I can’t see any fit either but who says that’s anything to do with anything.
Now if Alaska bought jetBlue, there is the ideal (domestic, but with good international partners) airline.
Southwest Airlines should acquire JetBlue. The End.
I believe a southwest / JetBlue merger makes more sense
But would it tip the balance towards United “winning” NYC, which would be a pretty large prize?
Actually, maybe that could just be achieved with a codeshare? United solidifies its lead in NYC and JetBlue strengthens its position vs. Delta in Boston?
Basically an east coast equivalent of what Alaska and American have on the west coast.