United and Continental to merge in $3B deal


POSTED: Tuesday, May 04, 2010

United and Continental Airlines are counting on more business travelers—not higher fares for vacationers—to make their $3 billion merger pay.

United CEO Glenn Tilton and Continental CEO Jeffery Smisek announced yesterday that the nation's third- and fourth-largest airlines will consolidate into the world's biggest in hopes of drawing more business travelers who will pay top dollar for last-minute tickets. It's a stock swap deal in which United acquires Continental, and the new airline is to be called United.

The two airlines have been losing tons of money, first from high fuel prices, then the recession. Now they say their combined network of flights across the U.S. and around the world will attract enough corporate travelers to boost revenue by up to $900 million a year.

“;The only people happier than Jeff and I today is our corporate sales team,”; Tilton said.

Henry Harteveldt, a travel industry analyst for Forrester Research, said U.S. leisure fares probably won't change much because Continental and United routes overlap heavily with low-fare carriers such as Southwest. They compete with discount carriers on 92 percent of the 50 biggest routes they serve, Harteveldt said.






        Here are some questions and answers about how the combination of the two airlines will affect travelers.


QUESTION: So, will I be flying on United or Continental planes in the future?


ANSWER: The planes will carry the United name, but they'll have the Continental globe logo on the tail, and Continental's blue color scheme.


Q: What happens to my frequent-flier miles?


A: The airlines say they will merge Continental's OnePass miles program with United's Mileage Plus. They haven't detailed their plans. But in past airline combinations, frequent-flier miles from one airline were converted into miles on the other.


Q: So does this mean the airlines have combined? Can I use my United ticket on Continental?


A: The two airlines will operate separately until the deal closes. They're hoping that happens by the end of 2010. They have an existing code-share agreement that allows them to sell tickets on each other's flights. That hasn't changed.


Q: This airline would be huge. Will it have a monopoly in some cities?


A: On a few routes, yes. On most routes, though, there is competition from other airlines, many of them discounters. Continental and United said they have no overlap on international routes.


“;The leisure market is always hotly contested,”; so it's less likely to tolerate fare increases, he said. “;Business travelers are less price-sensitive. They have to get on that plane, so they'll pay more for those flights.”;

(United Airlines operates 23 daily flights from Hawaii. Continental Airlines operates eight flights.

There are about 1,400 employees working at the airlines, which include Continental Micronesia, United Express, Continental Express and Continental Connection employees who provide service across the route networks.

Spokesmen for both airlines could not specify yet how operations would be affected. The companies did say the combined carrier will still serve the four airports in Honolulu, Lihue, Kahului and Kona and that it will provide service to 222 domestic airports and 148 international airports.)

Antitrust regulators will scrutinize the deal for its effect on fares, but Smisek and Tilton said even the larger United won't be able to boost prices, because other carriers might undercut them.

“;There is no carrier in the world that can set airfares,”; Smisek said.

“;We couldn't set airfares before this. We can't set airfares after this.”;

The deal would create a giant airline with major hubs in key domestic markets including New York, Los Angeles, Chicago, Houston and San Francisco, and an international network that includes United's extensive routes in the Pacific and Continental's routes to Europe and Latin America.

The companies said 57 percent of their capacity would be domestic, with 20 percent across the Atlantic, 15 percent across the Pacific and 8 percent to Latin America.

Smisek said the carrier would not eliminate service to any cities, and said Cleveland would continue to be one of the hubs when the deal closes, even though it is near United's hub in Chicago.

“;But it would be premature to talk about Cleveland, or any hub for that matter, in terms of how things will shake out over the next few years,”; he said.

Officials for the two airlines said they will eliminate some headquarters jobs in Houston and Chicago, but they gave no numbers.

The deal will leave three big U.S. airlines with major international routes—the new United, Delta and American Airlines, with US Airways a distant fourth.

Shares of both companies rose, with United parent UAL Corp. up 51 cents, or 2.4 percent, to close at $22.11, and Continental up 51 cents, or 2.3 percent, to close at $22.86.

Star-Bulletin reporter Gene Park contributed to this story.