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The Honolulu Advertiser
Posted on: Tuesday, May 4, 2010

Growth in business travelers expected to make merger pay

 •  Hawaiian not concerned about merger of Continental, United


By JOSHUA FREED and DAVID KOENIG
Associated Press

Hawaii news photo - The Honolulu Advertiser

After the merger of United and Continental airlines is final, the combined airline has no immediate plans to raise fares.

BRUCE ASATO | The Honolulu Advertiser

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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.

"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."

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.

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.

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.

The carriers said they would file their applications quickly with regulators including the Justice Department and the European Commission.

Smisek said United and Continental would seek shareholder votes in September, with the hope of closing the deal by the end of the year.

The new parent company will be called United Continental Holdings Inc., and have about $29 billion in annual revenue, based on 2009 results, and $7.4 billion in unrestricted cash. The airlines said combining would save them $1 billion to $1.2 billion a year by 2013, including between $800 million and $900 million in new yearly revenue.