After a long period of speculation, that included reported merger talks between US airlines in practically all combinations, it became official today: United Airlines and Continental Airlines are merging to form the world’s Largest Airline Company in a “Merger of Equals”.
Following the mega-merger of Delta Airlines and Northwest Airlines announced practically two years ago, the third and fourth largest US airlines are merging to form not only the largest in the US, but also in the world. They will remain in the Star Alliance, under the name “United”, but will keep the Continental logo and airplane liveries.
The two airlines together will operate a very extensive domestic US network and a very advanced international network – where currently they operate no overlapping routes, with a fleet of 692 aircraft! Connecting 370 destinations in 59 countries the more than 144 million passengers will have access to the widest global network of any carrier, which combined with the benefits of the Star Alliance will provide a true Global reach, with emphases on the 91 million (!) frequent flier members. With 10 hubs (Chicago, New York, Los Angeles, Houston, San Francisco, Washington DC, Denver, Cleveland, Guam and Tokyo), the combined United Airlines will be at home in the four largest US cities.
Interestingly, United and Continental were first reported to be in talks at the time of the Delta-Northwest announcement, but the merger rumours about United Airlines merging with US Airways were stronger recently, played down only early last week. The news about a possible tie-up with Continental got stronger (again) towards the second half of the week – but this merger had surely been in the pipeline for some time, as they even have developed a special website only dedicated to the merger: www.unitedcontinentalmerger.com
In a presentation targeted at investors, the new company announced that it will be headquartered in Chicago, “maintaining significant presence in Houston” as well, with the CEO having offices at both locations. On a pro forma basis, the combined company would have annual revenues of approximately $29 billion based on 2009 financial results and ownership will be: 55% United shareholders and 45% Continental shareholders. The holding company for the new entity will be named United Continental Holdings, Inc. The proposed transaction is expected to generate approximately $200 million to $300 million in annual net cost savings by 2013. The two companies currently employ 87.529 (46.602 (United) + 40.927 (Continental)) people.
Talking about employees, the two airlines’ pilot unions released a joint statement observing that “history has demonstrated that the integration of two airlines is always a difficult challenge. The support of the pilots is pivotal in determining whether a merger is successful or not, as will be the case with this merger…”
Of course the merger is subject to approval by shareholders and anti-trust regulations, but will most probably be completed according to plan before the end 2010 (by Q4 this year), with the single operating certificate targeted for the first half of 2012. (It took Delta Airlines to reach that goal by the end of 2010 and to retire the Northwest brand – thus United plans to work with similar timelines).
Looks like if American Airlines wants to stay in the game, it is now left with only one potential partner of significant size: US Airways. Will that be an acquisition type of merger like Delta, or a merger of equals like United and Continental, we’ll see, but it looks like the only logical step to be taken.