Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

JetBlue Airways Corporation (JBLU), Alaska Air Group, Inc. (ALK): Will a Scuttled Airline Merger Hurt Smaller Carriers?

The Department of Justice’s challenge to the proposed merger between US Airways and American Airlines parent company AMR surprised many analysts, including me. With the chances of the merger’s completion now up in the air, it’s time to look at how a failure to complete this merger might affect smaller industry players.

JetBlue Airways Corporation (NASDAQ:JBLU)

Potential slot gains
An independent reorganized American Airlines may decide to shrink operations, perhaps by selling off assets. While major carriers United, Delta, and US Airways would be bidders under this scenario, it would also give smaller carriers the opportunity to acquire new airport slots.

One airline that might gain an opportunity here is JetBlue Airways Corporation (NASDAQ:JBLU). It would like to expand its network in the Northeast, but the slots given to various carries have made that expansion difficult. If a restructured American were to divest airport slots in this region, JetBlue Airways Corporation (NASDAQ:JBLU) could gain further access to cities such as New York and Washington, D.C.

While JetBlue Airways Corporation (NASDAQ:JBLU) focuses on the East Coast, Alaska Air Group, Inc. (NYSE:ALK), parent company of Alaska Air Group, Inc. (NYSE:ALK) Airlines, could benefit from acquiring new slots along the West Coast. If American Airlines has to shrink its Los Angeles operations, Alaska Air Group, Inc. (NYSE:ALK) Airlines may be able to pick up slots at a highly popular airport. This, in turn, would boost the strength of Alaska’s network, giving it a greater presence in the West Coast market.

Hawaiian Holdings, Inc. (NASDAQ:HA) Airlines may be able to make West Coast acquisitions as well, while it works to build its domestic route network. However, some of the benefits may be balanced out by rivals that can also acquire additional West Coast slots and move into Hawaiian’s market. Regardless, Hawaiian Holdings, Inc. (NASDAQ:HA) Airlines is trying to diversify operations by launching additional flights from the Asia/Pacific region, selling tourism to developing countries’ growing middle classes. Even if rivals can gain a greater presence in the West Coast-to-Hawaii market, Hawaiian Holdings, Inc. (NASDAQ:HA) can still generate revenues from sales across the Pacific.

Large competitor factor
One of the difficulties faced by smaller carriers is a lack of economic scale and pricing power compared with the largest industry players. But a collapse of the US Airways/AMR merger would prevent the New American Airlines from taking even greater control over routes and fares. Now, this poses an interesting question: Would a large airline oligopoly help or hurt smaller carriers?

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.