United Airlines and Continental Airlines on Monday announced a $3 billion merger that would create the world’s biggest airline. þþThe all-stock deal would form a coast-to-coast American behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe. þþThe deal was completed in a remarkably short three weeks, and would give the airlines the muscle to fend off low-cost rivals at home and to take on foreign carriers abroad. United is buying Continental, and the combined company will keep the United name and be based in Chicago. It will, however, keep the Continental logo, livery and colors and maintain a large presence in Houston. þþJeffery A. Smisek, Continental’s chief executive, will run the company. If the merger is completed, the airline would replace Delta Air Lines as the top carrier. þþBut the deal has some major hurdles to clear. The airlines must win approval from the Justice Department’s antitrust division, a challenge given the renewed regulatory zeal in Washington. The merger also needs the backing of employee unions, whose opposition to mergers in the past has undone many of the proposed savings. þþA combination would have 10 domestic hubs, and serve more than 144 million passengers in 59 countries. Mr. Smisek said he did not anticipate antitrust problems since the companies have few overlapping domestic routes and do not compete internationally. þþThrough the Star Alliance, United and Continental already cooperate on foreign routes and have already obtained antitrust immunity on trans-Atlantic flights. þþ“From an antitrust perspective, I don’t think there is any other airline merger with less concerns,” Mr. Smisek said in interview Monday morning. þþIn a statement posted on a new Web site, the airlines said the merger would have “minimal” effects on its front-line employees, with reductions in staff mainly from “retirements, attrition and voluntary programs.” þþUnions representing Continental and United pilots said Monday that they expected a “fair and equitable” seniority integration between the two groups, and threatened to oppose the transaction if a new collective bargaining agreement was not reached. þþ“While there is potential for this transaction to create a truly great airline, there are also risks involved,” the unions said in a joint statement. “We have sacrificed too much through years of concessions, furloughs, pension freezes and terminations to accept unwarranted risk, and any risk requires reward.” þþUnlike the Delta-Northwest transaction, where the airlines had agreed to a new pilots’ contract before the merger, the speed of the talks between United and Continental did not allow for negotiations on that front, United’s chairman, Glenn F. Tilton, said. þþ“We came together very, very quickly, I think perhaps in an unprecedented abbreviated period of time to get this deal together,” Mr. Tilton said in a joint interview with Mr. Smisek. “Frankly we were already familiar with each other.” þþThe boards of both companies met Sunday to approve the all-stock deal. The UAL Corporation, United’s parent company, will issue 1.05 shares for each Continental share, valuing the acquisition at $3.17 billion, based on Friday’s closing price. The merger is expected to be completed before the end of the year. þþFor consumers, the merger could eventually result in higher prices. Though the new company does not intend to raise fares, according to people briefed on the matter, one of the rationales for airline mergers is to cut capacity. That reduces the number of seats in the industry and allows airlines to increase fares. þþIn addition, United and Continental will no longer be competing against each other on some routes, allowing them to save money but offering travelers fewer options. þþ“Airlines are struggling to find a business model that makes sense,” said Scott Sonenshein, an assistant professor at the Jones Graduate School of Business at Rice University. “Consolidation gives them more leverage. As a consumer, you will have less choices, fewer routes, higher prices and more fees.” þþStill, in the last decade fares in the United States have declined because of pressure from low-fare airlines like Southwest Airlines and JetBlue Airways, as well as lower passenger demand. As a result, previous mergers have had a muted effect on ticket prices, especially on routes served by low-fare carriers. þþEven with the steep cuts made in the last two years, airlines are still losing money, with too many seats chasing too few passengers. For much of the last decade they have suffered a succession of powerful blows — from the terrorist attacks of 9/11 to rapidly rising fuel costs and the recession. They have also been straining to keep up with low-fare competition. þþBut with the economy starting to improve and passenger traffic picking up, the industry is generally healthier now, with more cash and less debt. Credit markets have also thawed, allowing access to capital. þþ
Source: NY Times
