Continental-United Airlines Merger Could 'Send Airfares Skyward'

Delta and Northwest are just the latest in a string of recent mega-mergers. In 2005, America West acquired the bankrupt US Airways and took on the US Airways name for the newly-combined airline. The year before, Air France acquired KLM Royal Dutch Airlines and changed its name to Air France KLM. While the two coordinate on routes, they still operate two separate brands.

In the case of United and Continental, the two airlines' routes don't have a lot of overlap and would complement each other. Chicago-based United currently has hubs in Chicago, Washington, Denver, San Francisco and Los Angeles. While Houston-based Continental has hubs are in Houston, Newark, N.J., and Cleveland.

United's domestic routes are concentrated in the Midwest and Western states. It dominates the market in flights from the mainland to Hawaii and has a major foothold in routes to Asia and Australia. Continental focuses domestically on the South and East, has a strong presence in Mexico and the Caribbean and operates a southern Pacific hub out of Guam. United flies to 100 cities that Continental doesn't and Continental flies to 136 cities that United doesn't serve.

FareCompare's Seaney said that minor overlap -- "basically a few flights in and out of each other's hubs" -- is so small that smaller cities won't be hurt "overly hard unless the combined airline sees fit to pull back capacity."

"Continental has been relatively stubborn about cutting capacity compared to United," he added.

United and Continental's Merger History

This is not the first time the two airlines have considered merging. In 2008, the United and Continental were close to a deal but Continental pulled out at the last minute, wary of United's debt load.

After emerging from bankruptcy in 2006, United has put its financial house in order. Its losses are significantly less than past quarters and revenue is up 15 percent. United also now has $4.5 billion in cash on hand.

The new company would be based in Chicago but Continental's chairman, Jeffery A. Smisek, would be the new chief executive.

Frequent fliers won't see much of a change since Continental recently switched its frequent flier and marketing alliance from Delta's SkyTeam to United's Star Alliance.

Mann, the aviation analyst, said the combined airline would give Smisek a chance to write the next chapter in the Continental story, the prior one being "From Worst to First."

For United's CEO, Glenn F. Tilton, Mann said, the merger would be vindication of his efforts to reorganize United after bankruptcy and "and his 'urge to merge', though perhaps not across borders as he originally hoped."

Would Boeing Benefit from United-Continental Merger?

The merger could also mean a victory for Chicago-based aircraft manufacturer Boeing. United brings 386 planes to the table, a mixture of Airbus and Boeing aircraft. Continental's fleet of 351 is exclusively Boeing.

The merger leaves American and US Airways as the only remaining legacy airlines and Seaney said a merger between them is "very unlikely."

US Airways had flirted days ago with United but broke off those talks as the separate United-Continental discussions progressed.

Seaney said that the relatively small US Airways also probably won't be able to merge with the low-cost carriers who have a completely different business model: point-to-point route networks compared to the hub-and-spoke system the legacy airlines use.

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