American Airlines rejected talks of a megamerger with United Airlines last week. The company issued a statement which said: “American Airlines is not engaged with or interested in any discussions regarding a merger with United Airlines.”
“While changes in the broader airline marketplace may be necessary, a combination with United would be negative for competition and for consumers, and therefore, inconsistent with our understanding of the Administration’s philosophy toward the industry and principles of antitrust law,” American Airlines added.
This led to a drop in shares of the airline of more than 4% in morning trading. This reversed the gains of Friday amid a broad market rally.
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United CEO Scott Kirby had suggested a potential merger with American in February, but the airline has been considering the idea since last fall.
“Size would help” compete on U.S. outbound flights, Kirby said in the “Stratechery” podcast on an episode that aired in January. He added that when customers travel to the Middle East, they typically use the region’s airlines. ″[But] if we’re bigger and have more offerings for those customers, possibly, it… [is] more rational for them to fly us when they go to the Middle East.”
There have been concerns of a merger between the two major airlines creating the world’s largest airline, leading to a monopoly. The two airlines, along with Delta and Southwest Airlines, comprise 80% of domestic capacity. According to airline data firm OAG, a United-American merger would result in the two having roughly 40% of the domestic share.
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Past attempts at airline consolidation have faced opposition over fears of higher prices and reduced consumer choice.
“President Trump, he loves to see big deals happen,” U.S. Transportation Secretary Sean Duffy told CNBC’s “Power Lunch” earlier this month, adding there’s “room for mergers in the aviation industry.”
Duffy also said “If there was a merger between some of the larger airlines, they’re going to have to peel off some of their assets. We don’t want to have this massive infrastructure with one airline in America; again, that will affect pricing in the long run, because it would be a lack of competition.”
George Hay, a law professor at Cornell University, previously told CNBC that this would be the “biggest of all time,” and that he couldn’t see “the slightest chance that a court would allow it.”