United and Continental Airlines are planning a massive merger between the nation’s third and fourth largest carriers by traffic respectively to combine to become the world’s biggest. United CEO Glenn Tilton and Continental CEO Jeffrey Smisek are hoping that the $3 billion consolidation will help the two airlines rejuvenate their profitability that were affected initially by high fuel prices then by the slowdown in travel due to the recession. While leisure travel is certainly a large percentage of the airlines’ business, Tilton and Smisek hope that, by combining, they will appeal to more business travelers looking for last-minute, high dollar tickets. The deal offers an extensive network of domestic and international routes and key hubs in New York, Los Angeles, Chicago, Houston and San Francisco. Additionally, United has routes throughout the Pacific and Continental has service throughout Europe and Latin America. Continental and United hope that, by creating such a network, it will help them consolidate and corner the business travel market. The merger is a stock swap transaction where United will now own Continental and change its name to United. The new parent company will be called United Continental Holdings Inc. The company expects to generate annual revenues in the neighborhood of $29 billion.
The only roadblock to the successful completion of the merger would be antitrust regulators and their analysis of the possible changes in tickets prices should these companies make one entity. However, with discount airlines usually undercutting prices on most leisure and domestic routes, little should be feared about the transaction’s effect on ticket costs. Smisek agreed with this: “We couldn’t set air fares before this. We can’t set airfares after this.”
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