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United, Continental Airline Merger Could Be Complete by Year’s End

May 3, 2010 at 12:00 AM EDT
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After weeks of negotiation, United Airlines announced it will buy Continental in a deal totaling more than $3 billion. Judy Woodruff talks to travel writer Rudy Maxa about the proposed merger to form the world's largest airline.
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JEFFREY BROWN: Now: an airline mega-merger, and what it means for travelers and the business of flying.

NewsHour correspondent Kwame Holman begins with some background.

KWAME HOLMAN: After weeks of negotiation, United Airlines announced it will buy Continental in a deal totaling more than $3 billion. United’s CEO, Glenn Tilton, said the new airline will be stronger than either of the existing carriers.

GLENN TILTON, CEO, United Airlines: This company is going to be able to serve our shareholders, our stakeholders and our employees in ways that, frankly, neither Continental nor United could do if we weren’t about to embark on this journey.

KWAME HOLMAN: The merged airline will fly under the name United, but will use Continental’s logo and be run by Continental’s CEO, Jeffery Smisek.

JEFFERY SMISEK, CEO, Continental Airlines: This is a merger of equals, a true merger of equals. So, Continental will contribute six directors to the combined board. United will contribute six directors to the combined board. And Glenn and I will be on the board. He will serve as non-executive chairman. I will serve as CEO.

KWAME HOLMAN: The new United Airlines will surpass Delta Air Lines in size, making it the world’s largest carrier flying to 370 destinations.

It will be based in Chicago, United’s hometown, and will have a commanding position in other major U.S. cities, including New York, Los Angeles, Houston, and San Francisco. Together, the two airlines lost almost a billion dollars last year. By consolidating, they say they will save $1 billion to $2 billion a year by 2013. And that could mean layoffs.

The deal could close by year’s end, pending approval from shareholders and federal regulators.

JUDY WOODRUFF: For a traveler’s perspective on this merger, we turn to Rudy Maxa. He’s a contributing editor to “National Geographic Traveler” magazine and is the host of his own show on PBS.

Rudy Maxa, thank you very much for talking with us.

RUDY MAXA, host, “Rudy Maxa’s World”: Thanks, Judy.

JUDY WOODRUFF: Tell us, from a traveler’s perspective, what is this going to mean?

RUDY MAXA: Well, it’s not going to be a huge upheaval, because both airlines have been members of the same alliance, the OnePass alliance — excuse me — Star Alliance.

And, so, there’s been a certain amount of synergy and sharing. You know, frequent flyer members in one airline can use their miles on the other. However — and they don’t compete a whole lot on many routes, primarily New York, Chicago, that sort of thing.

So, passengers who have already flown those airlines won’t notice an enormous difference, if those two airlines can accomplish this merger, this coming-together, perhaps as well as Delta and Northwest did in the last two years.

JUDY WOODRUFF: Price of tickets?

RUDY MAXA: Well, whenever you have fewer airlines, you have less competition. Prices are going to go up somewhere. That doesn’t mean they’re going to go up across the board.

Because the airlines didn’t compete on the same routes, generally speaking, cities are not going to lose an airline. And prices shouldn’t go up overall generally in the United States or overseas.

But, certainly, in places where those two might have been the only two competing, they — they — they will go up, unless — you know, fortunately, we have — we have these — these — these fairly successful and profitable, in some cases, like Southwest, lower-cost airlines, who look for unusually high fares between city pairs because of the lack of competition, and go in.

So, there is a bit of a correcting mechanism in the model right now.

JUDY WOODRUFF: We heard Kwame in that report say 370 destinations. What about number of routes? More, less, the same?

RUDY MAXA: Well, they’re — they serve also 59 countries. That’s an enormous amount of countries.

And — and they see an advantage in this merger, because Continental has better coverage than United to, say, Latin America, and United has better coverage to Asia Pacific region than Continental. So, it will benefit that new airline, still to be called United, of course. There will be more seamless service.

There will be some hiccups in the beginning. There will be people who go in the large airports like LAX or JFK to the wrong terminal for a while. I certainly did that in the case of the Delta-Northwest merger. And I’m supposed to be a guy who travels all the time and knows about these things.

RUDY MAXA: So, there — there will be a few hiccups. But, if it can be done over time as Delta and Northwest did it, as smoothly, there shouldn’t be enormous disruptions.

JUDY WOODRUFF: We heard Kwame also say there could be layoffs. What’s your reading on that?

RUDY MAXA: Obviously, there are not going to be as many jobs in the combined airline as there are in the two standing alone now.

I — I think most of the layoffs will come from mid-management and management, where you have people doing the same job at both airlines. However, certainly, will there will be some frontline layoffs as well. But I don’t think it will be massive, because they’re not really cutting that many flights.

JUDY WOODRUFF: Rudy Maxa…

RUDY MAXA: So, you’re going to need the same amount of gate — gate agents and ticket people and luggage handlers as before.

JUDY WOODRUFF: Rudy Maxa, why does this merger make sense for these two airlines?

RUDY MAXA: Because they’re both losing a lot of money. And if they can avoid duplicating staff, routes, if they can synch their flights better, so that more people find them a convenient airline to fly, if they could only have one advertising budget, one marketing budget, one frequent flyer program, they will — they will realize savings.

JUDY WOODRUFF: And — and creating the world’s biggest airline out of this, what are the implications, then, overall for the industry?

RUDY MAXA: I think, at the end of the day, you’re going to have three, maybe four, but I think three major airlines in the United States, and then three or four so-cost low-cost — so-called low-cost carriers.

And that may allow them all to make some money. There are simply too many airlines here competing for too little piece of the pie — pieces of the pie, as evidenced by the fact they have been losing money for so many years.

JUDY WOODRUFF: Rudy Maxa, “National Geographic Traveler” magazine, thanks very much.

RUDY MAXA: Nice talking to you, Judy. Thank you.