United CEO Glenn Tilton and Continental CEO Jeffery Smisek announced Monday 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 from 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.
RelatedAirlines collect billions in feesRegulators to analyze dealHenry 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.
"There is no carrier in the world that can set air fares," Smisek said. "We couldn't set air fares before this. We can't set air fares after this."
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.
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