Would This Big Airline Merger Make Sense?

In the following video, Fool analyst Brendan Byrnes discusses a potential merger between AMR and US Airways.

AMR recently declared bankruptcy, but Brendan thinks there is more upside for US Airways if a merger did occur, as it could gain access to the international  routes AMR already has. There have been a lot of consolidations and mergers in this industry, but Brendan thinks this merger makes sense.

Amid all the speculation, US Airways' stock has risen more than 150% this year. Still, because of the structurally flawed industry, Brendan suggests staying away from airline stocks. He points to the high fixed costs and the airlines' vulnerability to commodity pricing. Many low-cost airlines are also undercutting the legacy airlines, which gives them no pricing power. 

Brendan suggests watching to see, first, whether AMR's management can get through bankruptcy as an independent airline, and then whether the merger happens. 

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Comments from our Foolish Readers

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  • Report this Comment On December 18, 2012, at 6:00 AM, jfl102 wrote:

    Article lacks substance .. basically useless. Fear of trading airlines is old school .. costs are manageable through fair hikes and capacity cuts . Airlines operating model is transitioning from seasonal profits to quarterly profits. Companies like DAL and ALU are primed to provide over the top performance in 2013...LCC not included here only because of the potential challenges related to an AMR merger. Not a fan of LUV. Just thinking out loud....

  • Report this Comment On December 18, 2012, at 7:19 AM, doolin288 wrote:

    jfl102

    Your 'thinking out loud' comments are more useful than the full article by Brendan. What he does not realize is that there has been a fundamental structural change in the airline industry. Consolidation + Capacity Control + Ancillary Revenue = Sustainable Profit.

    Airlines like DAL will be substantially more valuable in the future.

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