The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, April 15 (Reuters Breakingviews) - United Airlines UAL.O is flying a little too close to the sun. Boss Scott Kirby has discussed the heterodox idea of a tie-up with rival American Airlines AAL.O, which in the extreme would consolidate the U.S. market from four carriers to three. The financial logic may be compelling, but even today's trustbusters may raise their eyebrows.

Three airlines – United, American and Delta Air Lines DAL.N – control more than half the U.S. market by passenger miles, according to Department of Transportation data. Lower-cost Southwest LUV.N jostles with them.

This structure leads to dominance in lucrative travel hubs. United and American combined, a notion Kirby floated to government officials according to Bloomberg, would account for 40% of domestic traffic, rising to 45% in New York City’s airports and 70% in Chicago. Even if they had to offload the most troubling routes, at a minimum, the resulting market power would lead to significant financial benefits.

Unlike in most industries, where cost savings are the focus of mergers, airlines seek revenue uplift: ordinarily a slippery concept, the ability to fuse routes and gain scarce airport slots offers reliable advantages. For big carriers, the amount typically projects at between 2% and 4% of combined trailing revenue.

In this case, the sums imply $3.4 billion of synergies. After tax and on United’s EBITDA multiple, they're worth $16 billion today, enough to cover a 100% premium for $8 billion American.

Take it further and tax American’s anticipated $1.2 billion of operating income next year, per estimates compiled by Visible Alpha, and add it to the theoretical top-line boost. United’s implied return on the $30 billion deal, including debt, would be 10%. If structured as a stock swap, United would give away nearly a third of the combined company, and its associated benefits.

Stakeholders from pilots to politicians would squawk, and loudly. It's an audacious thought exercise even for the Trump administration, where there's leeway to pursue once-unthinkable combinations. Domestic routes accounting for nearly 14% of the duo’s available seat miles would go from two or three carriers down to one or two, Cowen analysts reckon.

Assume those trips are surrendered. United and American average about 18 cents of revenue per available domestic mile, meaning $9 billion of revenue, or more than $900 million in EBITDA at a blended 10% margin. The sum, although large, is not enough to wreck the economic case for a deal. If federal trustbusters somehow cleared the combination, states would almost certainly create another stiff legal headwind. At this point of the M&A cycle, however, the sky might seem the limit.

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CONTEXT NEWS

United Airlines CEO Scott Kirby pitched the idea of a tie-up with rival American Airlines to senior U.S. government officials, Bloomberg reported on April 13, citing unnamed sources.