American Airlines shares were lower in premarket trading Monday after the airline over the weekend rejected a proposed merger with United Airlines. The legacy U.S. airline issued a statement shortly after U.S. stocks closed on Friday denying rumors of a potential deal between the two airlines.
American Airlines and United Airlines passenger aircraft at Terminal A at Newark Liberty International Airport in New Jersey, U.S., Thursday, January 12, 2023.
The statement stated:"American Airlines has not initiated any discussions about a merger with United and has no interest in doing so."
The statement added:"Although the overall structure of the aviation market may need to be adjusted, merging with United Airlines will be detrimental to market competition and consumer rights. This is contrary to our understanding of the current government's aviation industry regulatory thinking and antitrust law principles."
Shares of American Airlines fell nearly 3% in premarket trading on Monday on the news, giving up gains made during Friday's broader market rally.
In February of this year, United CEO Scott Kirby raised the idea of merging with rival American Airlines during a meeting with the Trump administration at the White House. It is reported that United Airlines has been brewing the plan since at least last fall.
Kirby said on a January episode of the Stratechery podcast:“Greater scale will help us become more competitive in the U.S. outbound market.”
He explained that when travelers travel to the Middle East, they usually tend to choose local airlines.
"But if we were bigger and could provide more choices for these travelers, it would make more sense for them to fly with us when flying to the Middle East."
Once the two airlines merge, they will create the world's largest airline. The plan has therefore faced strict regulatory scrutiny and raised concerns about the formation of a monopoly in the market.
Currently, American Airlines and United Airlines, along with Delta Air Lines and Southwest Airlines, account for about 80% of domestic capacity in the United States.
According to statistics from aviation data agency OAG, if American Airlines and United Airlines complete their merger, they will collectively occupy about 40% of the domestic market share in the United States.
U.S. Transportation Secretary Sean Duffy said in an interview with CNBC’s “Power Lunch” program earlier this month:“President Trump likes to see big deals happen.”He also added,“There is still room for consolidation in the aviation industry.”
However, Duffy also pointed out:"If major airlines merge, they will have to divest some assets. We don't want the U.S. aviation infrastructure to be monopolized by a single airline. This will affect fares in the long run because the market will lack competition."
Cornell University law professor George Hay said bluntly in an interview with CNBC:"This would be the largest merger in history, and I think the chances of the court approving the deal are slim to none."