A prolonged merger courtship between Continental Airlines (CO) and United Airlines (UA), which began with serious high level discussions in February 2008, in the wake of an announcement by Delta Air Lines and Northwest to merge, is now likely to occur. On Sunday, May 2, 2010 the Board of Directors of both carriers gave their approval to a stock swap arrangement that would combine the two airlines into the world's largest carrier. An official announcement is expected shortly, perhaps later today.
The new airlines would carry the United name and livery, retain the UA Chicago corporate headquarters, and have Continental CEO Jeffrey Smisek running the merged company, with United CEO Glenn Tilton, the current United CEO becoming the Chairman of the new Board of DIrectors. Continental Airlines is currently based in Houston, Texas.
PHOTO CAPTIONS: (ABOVE LEFT) In this combo made from file photos, a Continental Airlines plane takes off from Cleveland Hopkins Airport over the NASA Glenn Research Center in Cleveland, top, and a United Airlines jet takes off from Seattle-Tacoma International Airport in Seattle. (AP Photo); (BELOW RIGHT) A United Airlines plane, bottom, and a Continental plane taxi before take off from Houston Bush Intercontinental Airport on Sunday, May 2, 2010, in Houston. Directors at Continental and United airlines have approved a deal that would combine them into the world's largest airline, a source with knowledge of the situation said on Sunday. (AP Photo/Houston Chronicle, Julio Cortez); (BELOW LEFT) Passengers check in at Continental Airlines kiosk located next to a United Airlines check-in area at O'Hare International Airport in Chicago, Wednesday, April 21, 2010. United Airlines and Continental Airlines are in the early stages of exchanging financial information that could lead to a deal to combine and create the world's biggest airline, people briefed on the talks said Tuesday. (AP Photo/Nam Y. Huh);
A slide show and three videos follow this article about the Continental and United merger.
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Both airlines are among the big five U.S. legacy carriers, which includes American, Continental, Delta, United, and U.S. Airways. United had been in merger talks with U.S. Airways, but called off those discussions on April 22, 2010. United and Continental have also previously both gone through and emerged from bankruptcy proceedings.
The merger is being driven by market forces that favor economies of scale, reducing available seats and the number of hub operations, and achieving across the board labor contract concessions. According to airline analyst Ray Neidl, the merger would be a good fit as there is very little overlap in routes. Possible opposition might come from labor union over seniority and give backs, political concerns, and antitrust issues raised by the U.S. Department of Justice, which has to sign off on the merger.
United currently operates a fleet of 359 aircraft, almost equally divided between Airbus A320-200 and Boeing 757-200, and has orders pending for 25 of both the new Boeing 787-8 Dreamliner and the Airbus A350-900XWB, with options to purchase 50 additional aircraft of each model.
Continental operates an all Boeing fleet of 339 aircraft, with the largest component being the Boeing 737-800, and was one of three carriers, with American Airlines and Delta Air Lines, to sign an exclusivity agreement with Boeing in the late 1990s. It also has orders for 25 Boeing 787 Dreamliners.
Airline analyst Neidl commented to Bloomberg Television that both UA and CO are probably not as prepared for as smooth a transition as the seamless merger recently concluded between Northwest and Delta. As carriers continue to consolidate through mergers, it appears likely that the travelers will have fewer airline brand choices.
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Comments
Hopefully their service will improve with the merger! My fingers are crossed...
My fingers are also crossed, Leslie. Too bad no in-flight meals anymore (although I think that stopped a while ago)
Thanks for the detailed article, Joel. If service on the airline would improve that would be stunning news. I'm not holding my breath!
And now there are three, count 'em, three US major international airlines. I predict worse service, higher fares and fewer options to getting around. Can AA/US Airways be far behind, or maybe SW will scoop up US Airways??? Then again, who would want them with their old planes, rotten service and major labor issues?
What a huge news story! I hope it only means better things for the airlines' staff and for the traveling public in the end...
Two bankrupt or almost bankrupt companies merge. Does that mean they will seek double secret bankruptcy?
Wish it were visa-versa. Continental is much more user-friendly. Sad to see it go. United on the other hand....
Comment posted on AviationLink Group on Linkedin on 05/03/10:
The core models don't change. The margins remain challenged by price matching and high labor costs. So, isn't a merger merely biding time. Won't the result be the same again in the future? I contend it will unless major changes occur. The changes may require industry agreement to allow prices to rise and grow margins. Hopefully labor cost reductions won't come by utilizing the technology from UAVs, reducing us to single pilot cockpits with a monitor on the ground monitoring multiple flights. Somebody track this and tell my grandkids that I said it!
Jeffrey Reich, CAM, MBA Elevon Consulting Principal helping executives with business aviation.
In a mature industry such as the airlines, consolidation is what comes next after the erosion of margins by pricing practices which really make no economic sense. It does cost more than 39 dollars to fly one segment, but the public has been spoiled way too long on the practice of discounting which had its purpose in filling unsold seats to be used for leisure travel. Though many so called experts love saying ."it will be bad for consumers due to higher prices." , the reality is a business has to be run properly to sustain itself and the era of airlines going in and out of bankruptcy should end with a reduction in operators.. It is the only way to make the career as a pilot, one filled with layoffs, job changes, and vanishing decades of career usefulness, a more stable one. Our years as spouses and parents must be spent maximizing our earning potential. Our children's interests are better served with industry consolidation.
The pilot comments were right on ..it's one of those desperation merger situations. Hope they make it...
Cheers...
Thanks for keeping us updated.
I wonder if our airlines will become too big to fail?
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