Tuesday, May 04, 2010

Continental and United to merge

Even though I knew this was coming, I still feel like I want to puke:
United and Continental confirmed this morning that the airlines would merge, a combination that will create the world's biggest airline. In a press release, the carriers say the all-stock deal – worth about $3 billion – will bring the airlines together in a "merger of equals."

The Associated Press writes "the new airline would jump past Delta Air Lines in size and have flights reaching from Shanghai to South America. That should lure more business travelers, who pay higher fares. The United name will live on, although the planes will have the Continental colors and logo." The sides hope to finalize the deal before the end of the year.

I was really hoping that the hometown airline would avoid doing this. Aside from the fact that I'm not thrilled about an airline as crappy as United tainting Continental's corporate DNA, the fact that Houston is losing a corporate headquarters, a lot of jobs and probably a lot of flights is going to suck. In that regard, my feelings are well-described by Chronicle cartoonist Nick Anderson.

I realize that it's all about business, and the airline industry is a business that continues to struggle. As the Chronicle's Loren Steffy explains:

Continental's approach has long believed that happy customers and happy employees will generate happy profits. So it continued amenities such as in-flight coach meals long after other carriers abandoned them. But the carrier still hasn't been consistently profitable, and it certainly hasn't benefited shareholders.

Continental's shares closed Friday at the same level they were trading at in 2006, and the carrier has reported losses in three of the past five years.

What's more, it faces a consolidating market. Delta's 2008 acquisition of Northwest gives it a larger global network, making it more formidable in competing for lucrative corporate travel contracts. If Continental walked away from the United deal, and United merged with someone else, Continental could have found it even more difficult to compete for these high-paying customers.

Indeed, as a stand-alone carrier Continental would have found itself in a tough position, so I understand why it decided that it needed to merge with another carrier. I just wish it wouldn't have been United.


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