USA TODAY International Edition
Airline stocks soar on AMR, US Airways deal
Settlement with Justice Department clears way for companies’ merger
Shares of airline stocks took off Tuesday after the U. S. government settled a lawsuit and agreed to allow American Airlines and US Airways to merge, paving the way for the creation of the world’s largest airline.
The terms of the deal also provided an opening for low- cost airlines to gain a foothold and fly more flights out of some of the nation’s biggest airports.
With the merger deal now slated to be completed in December, pending approval from the U. S. Bankruptcy Court, shares of American Airlines’ parent company jumped $ 2.38, or 26%, to an even $ 12. US Airways shares ended up 26 cents, or 1.1%, to $ 23.53.
Earlier this year, the U. S. Justice Department and a handful of states blocked the deal on antitrust grounds, arguing that a merger of the two airlines would hurt consumers by reducing competition and causing airfares to rise.
AMR, the parent of American Airlines which filed for bankruptcy protection nearly two years ago, and US Airways have said all along that the merger is necessary for them to remain competitive in an industry that has undergone massive consolidation in recent years.
Tuesday’s settlement was cheered by investors. It erased fears that the merger would never come to fruition, clearing away much of the uncertainty that has plagued the two airlines since the deal was placed in limbo, says Jim Corridore, an airline equity analyst at S& P Capital IQ.
“American Airlines’ shares enjoyed a relief rally as the stock had been starting to discount the possibility that there would be no merger,” Corridore says. “Plus, investors are now more fully valuing the merger vs. it not happening at all.”
The pending merger also turned out to be bullish for low- cost airlines, such as JetBlue and Southwest Airlines. As part of the settlement, the newly merged airlines will have to give up takeoff and landing slots in major airports, including Washington D. C.’ s Reagan National Airport, New York’s LaGuardia Airport, as well as airports in Boston, Chicago, Dallas, Los Angeles and Miami.
JetBlue surged 47 cents, or 6.1%, to $ 8.16. And Southwest Airlines saw its stock jump 22 cents, or 1.2%, to $ 18.03.
“There are only so many slots,” says Corridore.
But by giving up dozens of slots at Reagan and La Guardia, low- cost carriers now have a chance to move in, keeping fares from spiking and maintaining service to smaller communities that are often abandoned when larger carriers focus on only the most profitable routes.
“It gives those low- cost airlines that want to increase capacity and revenues access to business they would not have ever seen,” says Basili Alukos, an analyst at Morningstar. “They are large markets, not thirdtier cities. Revenue will basically shift from one carrier to the next.”
Continental Holding United Airlines rose $ 1.48, or 4.2%, to $ 36.79. Delta Air Lines climbed 66 cents, 2.4%, to $ 28.13.