United Continental Merger to Create World's Largest Airline

Continental is being bought by United Airlines. The name would be United, be headed by Continental's chief executive Jeffery Smisek, and would be based in Chicago. United's chairman, Glenn Tilton, would remain for two years. Later, Smisek would become the executive chairman. Glenn Tilton took over United in 2002 when it was on the verge of bankruptcy, and this deal is like a personal success for him. United shareholders would own 55% of the merged company, while Continental shareholders would end up owning the remaining 45%. After the United Continental merger, management would be from both sides. The merger would save the airlines around USD 1 billion annually. Operations would cover flights to 370 cities in 59 countries.

The new company does not plan to increase fare prices, and the idea behind the merger is to cut capacity, which reduces the number of seats in the market, so as to increase fares. Also another reason would be that now both United and Continental will not be in competition against each other, which will allow them to save a lot of costs, and give them more leverage.

United and Continental have a combined market share of 21% in the United States, and globally they would enjoy a market share of 7%. Delta Air Lines would be pushed to second place in the US with a market share of 20%, while one time market leader American Airlines would fall to third place. It is believed that US Airways, which had earlier had their own talks with United regarding a merger, have now been left alone, and their very survival is a matter of concern. A point to note is that Continental was close to buying off United a couple of years ago.

For the deal to go through, both airlines need approval from the Justice Department's antitrust division. It also needs the backing of employee unions, and a good things is that United's pilots' union has shown that they are not at all opposed to a deal with Continental. This new merged entity will replace Delta Air Lines as the top carrier in the country. The complete United Continental merger is expected to be done by the end of the year. The acquisition is being valued at USD 3.17 billion.