Spotlight: United-Continental Merger

By Deirdre Van Dyk Monday, May 17, 2010
    • John Gress / Reuters

    Don't ask whether the proposed $3 billion merger of United Airlines and Continental will benefit you. It won't. Because this isn't about you. It's about them. Specifically, it's about the need for the airlines to raise fares and increase revenues after years of irrational discounting that led to billions in losses. "For the airlines, it's a good thing," says Matthew Jacob, an airline analyst at Majestic Research. "By not having as much supply, they can fly fuller planes, charge higher prices and operate more efficiently. For the customer, well, I don't think you're going to see planes that are only two-thirds full or bargain-basement prices from airlines desperate to fill seats." In a joint press release bearing the United name recast in the Continental font, the new company promised "strong competitive pressure on fares," but in reality that pressure has been coming from budget carriers such as Southwest and JetBlue.

    Frequent flyers could lose out too, even if they don't lose any miles as the programs are combined. Says Ed Perkins, contributing editor of SmarterTravel.com "What matters is, Can you get seats? They'll cut back on the seats allocated for frequent-flyer miles." The merger also means a bigger pool of elite flyers like Tom Stroffolino, a technology consultant with half a million miles on Continental, which has a younger fleet than United and enjoys the better service reputation. "It's been such a pleasure to fly. Now with a blended fleet, I don't know," he says.

    Those of us in the back of the bus may have to worry about cranky employees who have lost some seniority in a joined workforce. Labor issues might be a problem, says Perkins. He remembers the United strike of 1985. "If and when they start making money," says Perkins, "those unions could turn around and say, 'We gave it up when you needed it. Where's our share?'" The potential for a strike worries him, since the new United will hold 21% of the market and finding a replacement seat in the event of a walkout could be next to impossible.

    As for fares, there's no place to go but up. After Delta merged with Northwest, fares on their combined routes rose at least 10%, according to George Hobica, founder of AirfareWatchdog.com But that's no reason to panic. "The vast majority of leisure travel is discretionary," he says. "When airlines raise fares, people stop flying. So they'll have to be judicious." Even if this merger prompts an American--US Airways linkup and even more consolidation, Hobica doesn't think we're going to see wild fare increases. But say goodbye to cheap escapes to Chicago--for dinner. "I've enjoyed the ride," says Hobica with a sigh. "But the party's over."