The “Big Four” in the airline industry — long known as Delta (DAL), American Airlines (AAL), United Airlines (UAL) and Southwest Airlines (LUV) — may look a little different at some point this year as executives pull the trigger on mergers to consolidate costs as the slog from the depths of the pandemic stretches on.
“We’re expecting mergers and acquisition to occur. You could see United Airlines buying JetBlue. United is going back to JFK (airport) after an absence of a few years and it (JetBlue) has a big presence there,” long-time airline industry analyst Helane Becker of Cowen told Yahoo Finance Live.
Becker has market perform ratings on both United and JetBlue.
Added Becker, “You can see Allegiant, Frontier and Spirit merge. Those three airlines have a 3 percent market share, maybe a little more now since they are so domestic. They would be a really terrific competitor to the Big Four because they are so low cost and their so domestic and leisure focused.” Becker rates Allegiant (ALGT) at Market perform and Spirit (SAVE) at Outperform.
Becker said, however, that depressed stock prices make doing a big airline deal now problematic. In other words, because of the toll the pandemic has had on air travel and airline cash flow, the stock prices are crazy low and unattractive in trying to fund a deal.
Shares of the Big Four airlines are down on average 36 percent over the past year, according to Yahoo Finance Premium data.
Moreover, most airlines lack the cash on the balance sheet to do a splashy deal. Cash is primarily being used to fund the losses being driven by the plunge in demand and high structural costs (see airplane maintenance, unionised employees, etc.). But to Becker’s point, some airline executives with the better balance sheets and stomachs of steel may be the reason they have no choice but to strike now on a target — Yahoo finance