Fallen American Airlines could be next to merge … with JetBlue?

American Airlines used to be the largest airline in the industry – now it’s third. Merger activity has narrowed the field, with SouthwestAirTran and United-Continental the latest deals that hit the sector. So, all eyes are on who will succumb to the urge to merge next, and American is being eyed as the next player.

According to a Forbes blog post, analysts from Morningstar believe that American Airlines “needs to make a big splash” to remain a player in an increasingly competitive market. The post continues:

“Once the industry’s largest carrier, [American Airlines] is now the third-largest…and any scale advantage it may have garnered is gone,” the Morningstar analysts write. “Ironically, AMR is at a substantial disadvantage, given that it steered clear of bankruptcy during the recession,” [Basili] Alukos and [Adam] Fleck say, pointing out that American’s labor rate is the industry’s highest on an equivalent basis.

So, who’s the right partner for American? The analysts at Morningstar are looking at JetBlue, especially given the latter’s “lighter cost structure.” Notes founder of Training the Street and former M&A investment banker Scott Rostan, “Three dominoes have fallen – Delta/Northwest, UAL/Continental and Southwest/AirTran.” He sees Alaska, Frontier and JetBlue as likely to make some noise.

[photo by Andrew Morrell Photography via Flickr]