Kirby Is Crazy… Like A Fox

United CEO, Scott Kirby, has made some outlandish statements about merging with American Airlines, and maybe he is crazy… crazy like a fox.

United Floats Merger Privately, Then Publicly

Reports documented an alleged conversation in which United CEO, Scott Kirby, floated the concept of a potential merger with American Airlines in the hushed corridors of Washington. He hasn’t confirmed that account but did indicate he attempted a conversation with American management which was rebutted without consideration. He mentioned that he wanted to “pitch that story to American but it declined to engage and instead responded by publicly closing the door.”

Following that, he doubled down by giving his account and then making his pitch public:

“In the past, airline mergers usually have been about two struggling airlines coming together to cut costs, flights and headcount. My aspirations could not be more different. The bold idea I wanted to pursue was about growth that would usher in a brand new era of leadership by U.S. aviation. After all, flight was born here and the storied names of the past, including both United and American, set the standards that the rest of the world aspired to. By combining our airlines and using that scale to revolutionize our customers’ experience, we’d create a new, thriving U.S. airline that would be the very best in the world for customers – full stop.

He then pitched his dream of a United-American merger:

“In the simplest terms, combining United and American could: 1) scale and grow that winning, customer-focused approach, 2) unlock incredible, new opportunities for both airlines’ customers, employees and the communities we serve and 3) create a great, new U.S. airline with the scale to compete and lead around the globe.”

Following that was another three paragraphs outlining how they’d create more value through technology and efficiency, compete with global carriers on the largest international stages, and boost the economy through even more jobs (not less.)

In his remarks about his concept, United Airlines CEO, Scott Kirby felt he could get regulatory approval and was “confident that this combination would be adding and not subtracting, creating a truly great airline that customers love.”

The Low-Hanging Fruit

As soon as the concept was mentioned, a mega merger so big it couldn’t possibly be real. My gut reaction was like most others in the travel media: this is a play for JetBlue.

The carrier is entrenched in New York’s JFK, an airport a prior United management team exited in favor of solely competing long haul from Newark. That’s attractive, not just because those slots might be better used by United (in their opinion) but also because his former boss eloquently pointed out that as a flying loyalty program, modern US carriers needs as much premium credit card base as possible.

JetBlue has an easy fleet to integrate, helps United jump the line again in Toulouse for more planes, and the carrier has already started a loyalty cross-pollination effort. A segment of JetBlue’s market is highly premium, and there are genuine opportunities for market efficiency with shared resources.

JetBlue is also struggling financially though not as dire as Spirit, and it might be the right time to get a deal together.

That’s the easy math.

True Intentions With American

Following the interactions over the last two weeks, including one in which American publicly dismissed the notion without taking the meeting, the notion was put to bed.

“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.” – Robert Isom, American Airlines CEO

But American showed some weakness I don’t think it realized. The I wouldn’t dignify this with a meeting approach and dismissal might work for carriers with a stronger balance sheet. American’s is woefully poor this decade despite record setting revenue quarter after quarter for the last few years. Its performance has been written about ad nauseam on this site by this author and Matthew too. The approach begs a comparison to other carriers. Who has performed better? Kirby has. So has Bastian at Delta, even O’Leary at Ryan Air has a far more successful airline even without a credit card business to make it profitable (something United, Delta, and American can’t say.)

American shareholders should expect the carrier and its management to do anything and everything to lift it out of its financial misery. Its flight attendants and pilots should want this too after a paltry end of year profit sharing amounted to 90% less than Isom’s own stock compensation for the year. The stock is down 44% since Isom took over just four years ago, and just $1.52bn in total income against $219bn in revnue since his tenure began.

The second mistake was talking about how their premium switch has been going and decrying they use too much duct tape. I believe he was speaking figuratively as a stand-in for temporary fixes over lasting remedies. But a quick stroll around social media suggests that it might not be hyperbolic.

American is making strides but I still wouldn’t class it “best” in any category. I love the loyalty program and some of its redemption rates are among the best. But execution on earned benefits like systemwide upgrades lag, the revamped lounges are far from Delta’s ground breaking security screening innovations, or Polaris’ colossal footprints. Its fleet isn’t the newest, it doesn’t run on time, and it ranks in the lowest quartile overall for US carriers jockeying to avoid the bottom with the likes of Spirit, Allegiant, Sun Country, and Frontier.

Investors might finally take a serious look at American management’s performance. Investors at JetBlue can say maybe it doesn’t make money today, but it will because the product is so good and the market position is too. (Those investors may, ultimately, be wrong.)

As Kirby continues to double down on the United-American merger topic, it seems more likely to me that anything else would be second fiddle. Who, in his position, wouldn’t want to be chairman of that Goliath? And for as much as this looks and feels more like a MAGA merger than a mega merger, President Trump has poured water on the notion.

Quiet rumors that slip out publicly (oops) start the conversation, then a denial of a public statement until American says no to an offer they haven’t received, then genuine interest reiterated. So what then is the play?

Boardroom Chaos

This seems like an opportunity for a shareholder group (I hold neither American nor United stock at the moment) to put forward motions of disruption. Maybe that’s a vote of no confidence, maybe it’s a motion to at least meet with United and explore their thoughts.

That could create some turbulence that either gets American to the table or depresses their share price in a material way. There’s no stock manipulation here, just genuine interest in building the world’s largest carrier and an environment that might make that possible.

It’s entirely possible that Kirby isn’t crazy, rather he’s crazy like a fox, attempting to engineer a landmark deal. Or, maybe he’s just crazy.

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