Wednesday, September 1, 2010

Approved: The New United

On Friday, the U.S. Department of Justice signed off on the proposed merger of United and Continental, after the latter agreed to transfer some of its gates at Newark-Liberty International Airport to low-cost carrier Southwest.  A shareholder vote is scheduled for September 17 (which is also the last day to trade September options, by the way), and a passing tally looks assured. 

There is some noise being made by opponents seeking judicial intervention to block the deal, and House Transportation Committee Chairman Oberstar is talking about re-regulation.  Oberstar says that, if the merger goes ahead, "our domestic carrier fleet will have shrunk to four network carriers."  (In making that claim, he dismisses Southwest, JetBlue, Airtran, Frontier, Spirit, Alaska Airlines, Hawaiian, Virgin America, Sun Country, and a few others.  But who's counting, right?)

The fact is, this is going to happen, whatever Oberstar says.  The question is, what lies ahead for passengers?  And the answer is, in the short run, nothing.

In a post-merger scenario, Continental and United will at first continue to operate as separate airlines under common ownership by a holding company.  (United Air Lines is already owned by a traded holding company as a result of a previous bankruptcy, so this is itself nothing new.)

The two Star Alliance airlines have already been working to extend cross-carrier benefits such as elite upgrades, so we can reasonably expect to see those roll out pretty soon after the merger is finalized.  Straightening out booking and routing systems, aligning flight schedules, and building a combined frequent flyer program will take longer.

One also has to keep in mind the ever-present labor issues of the industry  -- though my casual asides with United employees suggest they are thrilled to be coming under the management of Continental's executive team, which has long been held up as the gold standard for airline labor-management relations.  (As an example of why, Continental still maintains and funds a pension plan for its employees.)

By early next spring, Continental CEO Jeff Smisek, who will be the CEO of the new United, envisions that the combined carrier will be ready for "Customer Day One."  That's when everything will be in place from a passenger point of view.

And the last step, where the Department of Transportation issues a single carrier certificate for the new airline?  That will probably be next winter.

But it matters about as much as Chairman Oberstar's ability to count.

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