Could United Really Merge with American Airlines?

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Will two of America's biggest airlines become one? Gordon and Jay dig into whether a United-American mega-merger is actually on the table and ask what further consolidation would mean for the industry. Plus: Qantas cuts capacity and Korean Air's latest financials.

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Transcript of This Conversation

This transcript is generated by artificial intelligence.

Hello and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith, and I'm joined as usual by co-host Jay Shabat. In part one, we're discussing the latest news developments, and in part two, we're catching up on all things Korean Air.

Hi, Jay, how's it going?

All right, Gordon, what's up?

Well, I was just settling down for my bed last night, a cup of cocoa and flicking through back issues of Airline Weekly as I love to do. And then a little bombshell from Bloomberg dropped, and I thought, dang, that's gonna keep me awake all night.

I did actually get to sleep quite quickly after that, but our colleague Meghna Maharishi, who's a regular on the show, she jumped on it straight away, and all credit to the team at Bloomberg for this scoop of sorts, because there is still a lot

unknown here, but let's fill our listeners in, and our viewers now, around what was said. It was the headline, United CEO Pitched Trump on Possible Tie-Up with Rival American, obviously being American Airlines, Jay.

It was only on last week's show that we were discussing possible tie-ups, so we were speculating wildly. Southwest might get into bed with XYZ, Frontier, Spirit, JetBlue, and the rest. Someone we didn't have on our bingo card was United and American.

Lots more detail that we will get to in a minute in this discussion because there are plenty of caveats. It's not completely substantiated. Most of the parties involved declined to comment.

But just when you first heard that headline last night as we're recording here on April 14th, what ran through your mind?

What ran through my mind? Yeah, not something that I imagined would even be a rumor. It's not entirely out of the realm of possible outcomes.

It obviously sounds rather fantastical for these two giant airlines to merge. I mean, one would presume in normal times that any kind of antitrust enforcement would prevent two airlines of this size to combine. These are not normal times.

Not only do we have perhaps a antitrust enforcement regime that may be a little bit more loose and forgiving than some in the past.

We don't really know that necessarily, but that's a possibility that the Trump administration could look more kindly upon something like this than a previous administration would.

There's also, when I say times are not normal, we also are undergoing a fuel crisis as well. So there may be some different considerations if this crisis winds up turning into a financial crisis for the airlines.

Even if it doesn't go as far as being another COVID, I don't know if anything could ever be that bad, but if airlines were to start losing a lot of money, even the stronger airlines, if they were to start having to lay off workers, if there are other

nasty repercussions, something like that, you can see a scenario in which regulators would maybe say, okay, maybe this industry does restructure. There is, and without, we don't want to give it too much attention at such an early stage, but there is

some precedence for this in other industries. I mean, in rail transport, for example, freight rail transport, the US, there's only four giant freight railroads in the United States, and two of them are merging, and we'll see.

I mean, we don't know if that's going to get approved. There's a merger pending right now between two big freight railroads. In the railroad sector, you have these big companies that earn 40 percent margins.

I mean, these are Microsoft level operating profit margins. The airlines are, if they're lucky, a Delta United, they're doing 10 percent, maybe in a real good year, maybe 15 percent.

So we could maybe get to a point, I mean, you could see someone like Scott Kirby arguing that, okay, the 10 percent is just not enough to ensure stability of employment, ensure stability of service for different communities across the US.

Maybe we need to restructure the industry so that we have more financially sustainable margins. So I'll stop there, turn it back to you, Gordon, but it's certainly an interesting to think about.

It has certainly sent tongues wagging on both sides of the Atlantic, Jay.

Like I said, it was a Bloomberg story first and foremost, of course, interesting you mentioned the fuel price element there, Jay, because according to the Bloomberg report, Scott Kirby raised the idea directly to President Donald Trump during a

February 25th meeting. And of course, the Iran War was sort of warming up for a good number of weeks, lots of speculation about US and Israeli intervention there. But it wasn't until February 28th that things really started to get nasty.

So interesting that predated that 28th date. A spokesperson for United declined to comment, as did American Airlines executives, as did the White House. But we did have some of Meghna's additional reporting yesterday.

She was reminded that transport secretary Scott Duffy, Sean Duffy, I should say, said last week there was room for mergers in principle in the airline industry.

Even among the four big carriers, he said, if there was a merger between some of the larger airlines, they would have to peel off some of their assets. That was during a CNBC interview on April 7th, adding, I'm not going to pre-commit to anything.

So if this Bloomberg story got tongues wagging, Secretary Duffy's comment certainly got tongues wagging, albeit a week earlier, Jay.

So we'll certainly keep our listeners, our viewers and our readers in Airline Weekly up to date on this, but nothing much else to add at this stage.

I think it's worth pointing out that this story is out there, but it's speculation territory beyond that.

Right. Who knows if American would even want to entertain anything like this, if even assuming Kirby did propose it. Then just as you mentioned before, this is all in the context of discussion about JetBlue, perhaps finding a buyer.

Who knows, maybe it's United floating the possibility of buying American, just to put that up against perhaps a JetBlue deal. If they do wind up buying JetBlue, they can say, this is nothing like the American thing.

This is a tiny little thing, just to put that comparison in people's minds. I don't know if that psychology would advance very far, accomplish anything.

But yeah, you can see there's definitely thoughts of consolidation swirling around the industry right now. As you said, they were swirling even before the February 28th. Iran conflict began.

You have to assume that they'd be swirling even faster and more vigorously now.

Although, it does become, if you do reach a point where drastically higher fuel prices start to threaten your finances, then potentially that starts to threaten deals as well.

Even an airline like United might think to themselves, well, do we want to raise a whole bunch of new money to buy JetBlue with all this uncertainty still around?

The industry fuel crisis may do just as much to deter consolidation as encourage it, but who knows? We'll see.

Really, really good point. And if you're looking for more context around the consolidation discussions, both in the US and further afield, airlineweekly.com/subscribe. If you're not already a subscriber, jump across there.

You get access to all the back issues. So if you're wondering to know, what was Jay writing about Virgin America back in 2013, then there you go. Some other news lines that we're keeping an eye on today, Jay, as we're recording here, April 14th.

We had some interesting information from Qantas out overnight. I wrote about that for Skift just this morning. Essentially, they are reacting to the fuel price crisis.

We've already established we're going to call it a crisis on the podcast, despite our threshold for that word being pretty high.

Yep, the Australian flag carrier fleshing out some of the numbers that we already knew that they would be facing, but just putting out those is quite something, seeing in black and white.

Qantas says it's covered roughly 90 percent of its crude oil exposure, aka hedging, but there is a part of that process that cannot be hedged or is very difficult to hedge. That is the cost of refining that crude oil into usable jet fuel.

We're not a jet fuel podcast, we never will be, but it is an important part of the process. So there's a lot of people who think, well, you're hedged, you're fine. There is a little bit of additional processing involved in there.

So Qantas said that those refining margins have jumped from around 20 US per barrel in February to as high as 120 in just over six weeks. So what are they doing about it?

They are trimming some US domestic capacity, group-wide is going to be down around five percent in the current quarter. Some cuts as well at Jetstar.

Interestingly, they are pivoting some, not all, of that capacity to Paris and to Rome, which are the two ultra-long haul routes along with London that they operate, especially in the summer season.

So things are changing up a little bit in terms of the route network strategy, Jay. But of course, even though Qantas don't fly on their own metal to the Middle East, they are so affected by the airspace.

So that flight, which is usually from Perth to London, for example, is currently tracking over Singapore on the outbound. I believe it is still able to do the Heathrow to Perth non-stop due to tailwinds and various other operational factors.

But the outbound is going via Singapore. And the Paris service is flying from Sydney via Singapore, again, on the outbound there. So these are not the non-stop services that are so popular.

But still, you're cutting out any of the potential issues and disruptions in the Gulf. So they're clearly seeing demand for those and they're putting in some extra capacity into Paris and Rome.

Yeah. And I read your article that you wrote this morning. We're talking on Tuesday, just so everybody knows.

And the, interestingly enough, the two airlines that were perhaps the earliest to issue warnings about their profitability in the context of this conflict and this fuel crisis have been Qantas and Air New Zealand, two very, very long haul airlines.

And these ultra long haul routes tend to get affected disproportionately by higher fuel costs. I mean, you just think you have to fill up the entire, you know, the entire tank in the plane with fuel to make it that far.

And, you know, you're just, you're spending a lot of time in the air. So it's, you know, those two airlines have been, you know, are already feeling it.

And despite the fact that both of those airlines compete rather intensely with the Gulf carriers and with the Gulf hubs, so they, I'm sure, they're seeing it some positives on the revenue side.

And we'll talk a little bit about some positive revenue momentum that Korean Air is seeing. We'll talk about that in a moment.

But as you said, I mean, they're sending more planes to Europe because they are obviously taking up traffic that might have otherwise gone through the Gulf hubs.

But despite that revenue benefit, they still feel the need to tell investors, hey, look, things are sliding off track here a little bit because of this, what fuel is doing to us.

Yeah, absolutely. Qantas is saying earlier today, the international unit revenue is now expected to rise between four and 6% in the second half. That's double the guidance they issued just in February.

And I was looking, Jay, at the Investor Center. It was February 26th that they put out all of the prior numbers. So, yeah, what a difference 40 hours makes.

40 hours.

Yeah.

But like we said, that uplift in revenue is unlikely to trickle down into the bottom line just because there are so many additional factors there.

And, you know, especially for Paris and London, those routes, even with the Dreamliner, even with the premium dense configuration, you are still really pushing the limits of that aircraft.

So it doesn't take much in terms of airspace or in terms of some unfavorable weather to really have to go for an alternate stop-off point, Singapore being the desired candidate in this case.

But definitely some operational and logistical concerns there. Any other news lines or news bits you want to update our listeners and viewers on before we head into the break?

13:20

News Korean Air Preview

No, there's obviously a lot going on.

I mean, Lufthansa is, you know, experiencing a strike as we speak, labor unrest there. We've got more US earnings coming next week. So mid next week, we've got the Big Three United, American and Southwest all go Wednesday or Thursday of next week.

So we have that coming up. But then we just today or yesterday, I guess, Monday, I should be clear with the dates, Monday, the 13th, Korean Air reported, and I presume we're going to be talking about that when we get back from the break, right?

We sure are. Yes, absolutely right. A perfect segue into the break, Jay.

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Don't go anywhere. We're catching up on all things Korean Air in part two.

14:23

Korean Air Strong Q1

Hello and welcome back to the Airline Weekly Lounge. I'm Gordon Smith, joined as usual by co-host Jay Shabat. Part one, we were filling you in on various news lines, news bits, briefs.

I think we call them in the trade, news briefs, Jay. Part two, we are discussing Korean Air.

That Delta partnership, maybe is rubbing off on their finance department because Delta, you'll remember for those listening, those that listened last week, you remember we talked about Delta being the first airline in the world to report their first

quarter earnings. And just this week, Korean Air followed. And now we have two airlines worldwide that have reported as we speak so far. We had the Delta, now it's partner Korean.

And Korean reported very strong numbers. Interestingly, I think this was, you know, there's a lot of anticipation for these Asian carriers to report because it's one thing.

I mean, Delta, they certainly do have some revenue exposure to, or let's say overlap with the Gulf hubs and India itineraries, for example. But it's rather minimal, it's rather modest. Whereas some of these Asian carriers have much more overlap.

So it's kind of interesting to hear what they have to say. And Korean Air, as it turned out, had a very strong first quarter. They had an 11% operating margin.

This is relatively off-peak quarter for them. It was only 9% last year, last year's first quarter. So good numbers.

And I'll go through some of the reasons why, what they're seeing.

15:59

Korean Air Passenger Growth

So first of all, they indeed are seeing a big revenue increase on routes to Europe in particular.

So you can imagine someone from just making this up, but let's say Vietnam going to Paris or London, and they have an option of going through Dubai or Doha or Tokyo or Seoul.

Well, those people are presumably now opting for the Northeast Asian hubs, like Seoul and Cheon. And Seoul and Cheon is one of the more powerful hubs with some of the best schedules.

So they saw in the first quarter, their revenue from European routes, passenger revenue, increased almost 20%. I think the exact number is 18% year over year. So that's a big number.

And just keep in mind that when you're talking about the first quarter, you're talking about January, February, March. Only March was subject to the post-crisis, post-Iran conflict.

So that one month of revenue gains alone, presumably drove a lot of that 18%. So they had that going on. They're also Korean Air is benefiting from another geopolitical disruption.

The tensions between Japan and China have driven a lot of Chinese tourists who might have otherwise gone to Japan to Korea instead. You also see them go into Malaysia and Singapore and other places. Korean Air is definitely benefiting from that.

So they saw a big increase, similar increase, almost 20% also on their Korea-China routes. They also said the demand in the other direction is just as strong. So Koreans going to China.

Presumably, yeah, that could be connecting demand as well. It could be Americans going to China via Seoul. They weren't very clear.

I should be clear that Delta and the US carriers are going to be much more transparent than a Korean Air. Basically, what I'm working off of are published financial statements and a seven or eight page PowerPoint presentation deck.

There was no earnings call or anything like that. So it's a little bit less transparent. We know less, but you can see just from what I'm saying, that there's enough information to draw conclusions here.

We talked about China, we talked about Europe. Japan, also very strong for them. A lot of Korean tourists still visiting Japan.

Some of that is exchange rate related. Then their biggest market of all is the US. They're actually the largest East Asian airline in the US.

There's just a very large Korean American population. There are a lot of Korean companies that have investments in the US. You can think of Samsung, you can think of Hyundai, you can go on and on.

So that market, they actually didn't say much about that market on the passenger side. I think we can safely say, based on past trends, past statements from 2025 and earlier, that US-Asia markets are very strong, especially in the premium market.

So we'll assume that that continued to be true.

No news is good news.

Yeah, no news is good news. I didn't say anything. Presumably, it didn't go to hell.

So yeah, that we'll say is probably good for them.

19:28

Korean Air Cargo Diversification

And if I may just continue for a few minutes more, the passenger business, which I've just talked about, is only 58%, is that the right number? I have to, I'm cheating here. Yeah, 50%, I did take a look here.

50% of their total revenues. So Korean Air has a very large cargo business. And remember, South Korea is a very big exporting nation.

So it makes sense that there'd be a lot of cargo going out of there. They also carry a lot of cargo originating in China, which is another big export nation. Probably a lot of Japanese cargo as well.

Now we don't, as you know, we, our readers know, we focus more, Airline Weekly focuses more on the passenger side of the business, not the cargo. But obviously in this case, it's relevant to Korean Air.

So I can share with you that the cargo business is doing very well. There's a lot of revenue, very, very, in fact, the cargo revenue is growing stronger than the passenger revenue. And that may be mysterious.

You know, some of you may be asking, well, are, you know, we in a tariff war and global trade is under threat and the US is their biggest market. What's going on here? And there are a couple of things.

I mean, for one, the US exempted IT equipment, a lot of IT equipment from the tariffs. So all of this artificial intelligence investment, you know, building data centers, whatever, a lot of that is importing chips from Taiwan, from Korea.

A lot of those chips are coming over on Korean Air, in the bellies of Korean airplanes, or on their all, you know, they have, you know, cargo-only jets as well. So their cargo is really benefiting from that.

They also mentioned that they are benefiting from this boom in K-Beauty, which our colleagues, our Skift colleagues are reminded that that was actually one of our megatrends this year, our Skift megatrends, that apparently there's this big boom in

Korean cosmetic products that the rest of the world is buying. And Korean Air flagged it. I mean, it's in their presentation. They said, we are definitely benefiting from this trend.

So a lot of stuff on the cargo side going well. And it's not negligible to point out that they have a very big aerospace manufacturing business as well. Korean Air does.

So that's producing parts for Boeing and Airbus jets. It's producing drones. That business is, they don't say too much about it, but apparently that's growing rather quickly as well.

So that is a, yeah, that's some Korean Air in a nutshell. Fuel is obviously a pressure point for them. It wasn't in the first quarter, incidentally.

Their fuel costs actually went down 1% in the first quarter. I think some of that probably related to hedging. Some of that just, they actually cut capacity.

But going forward, they said, that's going to be a very, very big focus is, we're going through a cost-cutting program, we're going to, they did say this, this is actually kind of interesting on the demand side.

They did say that domestically, they are starting to see some weaker sentiment among outbound Korean travelers. So they're turning their focus more to overseas demand.

People traveling from the US and Europe and Australia and China, Japan, and also just connecting demand, transfer demand through Seoul and China.

So that's, you know, kind of, that's a pretty, I thought that was a significant revelation, that they say already Korean consumers are getting worried about what higher fuel prices might do to the economy.

23:19

Asiana Merger Context

There might be some listeners who are asking, actually, what is Korean Air these days?

These numbers that we're discussing, are these consolidated yet with the Asiana merger? Having taken place, or are these still separate entities?

Yeah, before we went on the podcast, we started recording, I said to myself, I have to remember to make this point, and I forgot to make this point. So I'm glad you brought it up.

The, when I said that Korean Air did very well, and I gave you that 11% Q&A operating margin figure, that it does not include Asiana, which lost money last year. So the numbers would look worse.

Asiana hasn't reported their Q1 yet, but we can also, we're making a lot of assumptions in this podcast, but I think they're fair ones. We can assume again that Asiana's number, they probably, if they made money, they certainly didn't make an 11%.

It was probably worse than that. So Korean Air is maybe not doing as well as I originally presented or represented. That merger is just kind of, you know, it's happening over time.

The integration is just rolling out slowly. So it's a good point that you make.

And at some point Asiana will have, we'll publish their numbers and we'll make sure to show them in our earnings scoreboard that we run in Airline Weekly in our newsletter every week.

Or sorry, every newsletters every week, but the earnings are quarterly, obviously, the scoreboards. So, and we'll be FYI, we will have our Q4 2025 scoreboard available in the upcoming issue of Airline Weekly. So, be sure to check that out.

But a good question about Aegean, Gordon. Thanks for reminding me.

That's what I'm here for. April 20th. There we go.

That will be the next issue of Airline Weekly. So, if you want to get the latest scoreboard, it's not too late to subscribe, aelineweekly.com or slash subscribe to get all the information there. Anything else to add, Jay, before we wrap up?

No, other than, you know, we're obviously monitoring the fuels and the, you know, all the craziness in the world and what it might mean to airlines.

And then, of course, looking, I think, I think I could speak on your behalf, Gordon, in saying that both of us are very eagerly anticipating next week's earnings from some of the big US players.

And, you know, at some point, pretty soon, I don't have the dates off the top of my head, but at some point we'll get some of the European carriers as well, the big players over there, Ryanair and Air France, KLM, et cetera, British Airways, IEG.

Yeah, we'll wait for that.

Never a dull moment, Jay. Thanks for running us through those various bits of news and also the Korean Air numbers. Much more detail, as always, in the next issue of Airline Weekly.

Right, that's all we've got time for, but thanks to Jay for joining me this week. And thanks as always to our producers, John Monica and Will. And wherever you are in the world, thanks for listening, and we'll catch you next time.

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