A potential deal between United Airlines and American Airlines would create an industry behemoth and invite extraordinary scrutiny from regulators, labour unions and consumer advocates, all wary of higher fares and reduced competition.
United Airlines CEO Scott Kirby pitched a potential merger of the two carriers to US President Donald Trump in late February, according to two sources familiar with the matter, but industry officials were quick to highlight the formidable antitrust obstacles such a deal would face.
The details of Kirby's proposal were not immediately clear. United declined to comment on the antitrust implications of a potential merger.
"This seems hopeless to me. There are huge overlaps on a number of routes and in various metropolitan areas (such as Chicago). No amount of divestitures would fix it," said William Kovacic, director of the competition law centre at George Washington University.
American Airlines' shares rose 7% in morning trading, as investors viewed a potential deal as a rare bright spot for a carrier that has struggled in recent quarters to deliver consistent profits and bring costs under control. United shares were up about 2%.
"In terms of valuation, we imagine American would anchor to their unencumbered asset base of over $14bn and argue for a valuation over $20/share, though (we) wonder if that is realistic, given how much their leverage would alter United's risk profile," TD Cowen analyst Tom Fitzgerald said.
A $20 per share valuation would command a 78% premium to American's last close.
Among other carriers, JetBlue Airways jumped 9%, while Alaska Air rose 7%, Southwest added 6% and Delta Air Lines gained 6%, as crude oil prices fell on Tuesday.
Even if United and American were able to make their case to the Trump administration, scrutiny could come from other quarters.
States are taking an increasingly active role in policing mergers. A state coalition recently sued to unwind Nexstar's acquisition of rival broadcast station owner Tegna. Competitors or even customers can also sue to block deals.
Spokespeople for the attorneys general in Illinois, where United is based, and Texas, where American is headquartered, did not immediately respond to requests for comment.
American has been trying to close the gap with rivals Delta Air Lines and United Airlines, which have pulled ahead by capitalizing on strong demand for premium travel and better tailoring their products to shifts in the market.
Before any divestitures, the combined carriers pro forma network would be a behemoth, with a 50% or greater share of domestic capacity at 159 airports, Fitzgerald said.
For United, a deal of this scale could provide the step-change in capacity and market share it would need to establish a clear lead over rival Delta Air, which has long dominated the industry in profitability and premium revenue.
"A United-American deal would reduce the 'Big 4' to a 'Big 3' with one dominant player. There would likely be competitive issues in many city-pair routes and hubs," said antitrust lawyer Andre Barlow with DBM Law Group.
"I am not sure this deal can get done. The Trump administration is concerned about affordability issues and this deal would reduce choices and give the airlines more pricing power, which means higher fees for consumers so I would think this would get a rigorous review," Barlow added.
Since the US-Israeli war with Iran began in late February, shares of both airlines have fallen as the conflict sent jet fuel prices sharply higher, with American down 14.1% and United off 10.4%.
Airlines and industry executives have warned that a prolonged period of elevated fuel costs could reshape the sector by squeezing margins, limiting capacity growth and increasing pressure on financially weaker carriers.
Kirby raised the merger idea during a February 25 White House meeting focused on the future of Washington Dulles International Airport, three days before the conflict began, sources told Reuters.
He argued that a combined airline would be better positioned to compete internationally, where foreign carriers account for a majority of long-haul seat capacity to and from the United States, despite US citizens making up most of those travelers.
Industry officials and antitrust experts said any attempt to win approval would face steep hurdles, citing concerns about competition, higher fares, job losses and significant route overlap in a US airline market already dominated by four major carriers.
American did not immediately respond to a request for comment on the antitrust implications of the potential merger.
