United and Continental join forces to rule sky
Source: Agencies |
May 4, 2010, Tuesday
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Print Edition
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UNITED and Continental Airlines are forming the world's largest airline in a deal worth about US$3 billion.
The new United would surpass Delta Air Lines in size, which should help it attract more high-fare business travelers, the two companies said yesterday. It will fly to 370 destinations in 59 countries.
Although the United name will live on, and the company will stay in Chicago, it will be run by current Continental CEO Jeffery Smisek.
United CEO Glenn Tilton, an advocate of industry consolidation, will be non-executive chairman for up to two years before Smisek adds the chairman title.
The new parent company will be called United Continental Holdings Inc, and have about US$29 billion in annual revenue based on 2009 results and US$7.4 billion in unrestricted cash.
The airlines said combining would save them US$1 billion to US$1.2 billion a year by 2013, including between US$800 million and US$900 million in new yearly revenue.
The deal will create a giant with major hubs in key domestic markets including New York, Los Angeles, Chicago, Houston and San Francisco and an international network stretching from Shanghai to South America.
It will leave three big United States airlines with major international routes - the new United, Delta and American Airlines, with US Airways a distant fourth.
United is the third-largest US carrier by traffic, while Continental Airlines, in Houston, is No. 4.
Wall Street has pushed consolidation as a way to let airlines raise fares by reducing flight and seat numbers.
Smisek and Tilton said in an interview that the deal would not necessarily mean higher fares, but anti-trust regulators are expected to scrutinize the transaction.
Smisek said the companies don't assume they can boost prices, but that with a bigger network they can attract more high-paying corporate travelers.
Two years ago, Continental walked away from a United deal. Smisek said times had changed since 2008, when both were low on cash and had record fuel costs.
"Both carriers are performing better than they have been for the past couple of years," he said. "The economy is on an upswing. Fuel prices, although high, are manageable."
Owners of United parent UAL Corp will hold 55 percent of the combined company, with Continental shareholders owning the rest.
Continental shareholders will receive 1.05 UAL shares in exchange for each one of theirs in the deal.
The new United would surpass Delta Air Lines in size, which should help it attract more high-fare business travelers, the two companies said yesterday. It will fly to 370 destinations in 59 countries.
Although the United name will live on, and the company will stay in Chicago, it will be run by current Continental CEO Jeffery Smisek.
United CEO Glenn Tilton, an advocate of industry consolidation, will be non-executive chairman for up to two years before Smisek adds the chairman title.
The new parent company will be called United Continental Holdings Inc, and have about US$29 billion in annual revenue based on 2009 results and US$7.4 billion in unrestricted cash.
The airlines said combining would save them US$1 billion to US$1.2 billion a year by 2013, including between US$800 million and US$900 million in new yearly revenue.
The deal will create a giant with major hubs in key domestic markets including New York, Los Angeles, Chicago, Houston and San Francisco and an international network stretching from Shanghai to South America.
It will leave three big United States airlines with major international routes - the new United, Delta and American Airlines, with US Airways a distant fourth.
United is the third-largest US carrier by traffic, while Continental Airlines, in Houston, is No. 4.
Wall Street has pushed consolidation as a way to let airlines raise fares by reducing flight and seat numbers.
Smisek and Tilton said in an interview that the deal would not necessarily mean higher fares, but anti-trust regulators are expected to scrutinize the transaction.
Smisek said the companies don't assume they can boost prices, but that with a bigger network they can attract more high-paying corporate travelers.
Two years ago, Continental walked away from a United deal. Smisek said times had changed since 2008, when both were low on cash and had record fuel costs.
"Both carriers are performing better than they have been for the past couple of years," he said. "The economy is on an upswing. Fuel prices, although high, are manageable."
Owners of United parent UAL Corp will hold 55 percent of the combined company, with Continental shareholders owning the rest.
Continental shareholders will receive 1.05 UAL shares in exchange for each one of theirs in the deal.
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