Delta’s top executive believes higher jet fuel prices could prompt a new wave of reform and consolidation across the U.S. airline industry.
During the carrier’s first-quarter earnings call on Wednesday, CEO Ed Bastian took a question about the sector’s broader outlook as energy costs eat away at many airlines’ margins.
“You have a considerable portion of the industry that has not returned its cost of capital, has not made a profit in years,” he said. “And going back over the last decade, when we saw consolidation happen, we forget what drove consolidation. What drove consolidation was higher fuel prices back in 2009, 2010, 2011. And we were the leaders in that with the acquisition of Northwest in 2008. So I anticipate higher fuel prices will cause much more significant structural reform than we’ve seen over this period.”
The last major crisis to confront the airline industry, the COVID-19 pandemic, was a “different animal,” Bastian said, because no carrier was “strong enough to engage in the type of rationalization that was necessary.” But this time around, conditions could be more favorable for a major shakeup, he noted.
“As we look forward to building a healthier business for the future, there’s a number of business models that I think their owners are going to start questioning whether they continue to commit capital, and however that plays out, it’s going to be a benefit to Delta,” Bastian said.
The topic of mergers and acquisitions in the airline industry has recently reentered the news cycle, and there is growing speculation that some budget airlines will have to partner up to survive the rapidly changing business environment.
Last month, Semafor reported that JetBlue is exploring a possible sale. The outlet named three potential partners for the New York-based low-cost airline – United, Alaska Airlines, and Southwest. A linkup with any one of these airlines would have a transformative effect on the industry, provided it can pass muster with regulators.
JetBlue has not recorded a full-year net profit since 2019.
Earlier this week, U.S. Transportation Secretary Sean Duffy said the Trump administration is open to the idea of mergers in the air transportation sector, even if they involve one of the Big Four.
The president “loves to see big deals happen,” Duffy told CNBC, though he added that any potential merger would still have to be scrutinized for its potential impact on prices and industry competition.
