United Airlines and Continental Airlines have agreed to merge by way of a $3.2 billion share for share exchange. The merged airline will be the largest in the world in terms of traffic, taking a 7% market share (although, for the purposes of this particular ‘first place’, traffic is measured by the total distance flown by passengers, not number of passengers; Delta Air Lines retains top spot in terms of number of passengers…).
Completion of the merger is due to take place by the end of the year and it is likely that regulators will grant their approval to the deal because of the lack of overlap between flight destinations and hubs. The new company, to be known as United Airlines, will have annual revenues of almost $30 billion and some 85,000 employees.
Although both airlines are based in the United States and hold a combined share of some 20% of their domestic market, both airlines operate globally and United Airlines (as it is currently) is one of the favoured four airlines that are permitted to fly passengers across the Atlantic from Heathrow, which is the busiest airport in Europe.
This number could be reduced from four to three since two of the airlines, British Airways and American Airlines, have been in talks for several years to create a single airline. So far they have been unsuccessful, mainly due to the objections of regulators, but the United/Continental tie-up may help their cause. A condition to the U.S. Department of Transportation recently granting its approval (for antitrust purposes) to the oneworld alliance of airlines, of which British Airways and American Airlines are members, was that both airlines give up a small proportion of their prized transatlantic Heathrow slots. Any merger between the two would surely necessitate their surrendering a larger slice of this lucrative pie.
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