Travelers WIll Be the Big Losers in United-Continental Airline Merger

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The only good news about the merger between United (UAUA) and Continental Airlines (CAL) is that it will bring Southwest (LUV) into the mix at Newark Airport, giving the carrier a much larger presence in the New York market. United and Continental were granted permission to merge from the antitrust division of the Justice Department after Continental agreed to lease gates to Southwest.

The agreement will allow Southwest to operate 18 daily round-trips from Newark beginning next March. Until now, Southwest's presence in the New York market has been fairly limited, with only a few departures a day from LaGuardia Airport in Queens.
Airline ticket prices at Newark are the highest in the Northeastern U.S. because of Continental's near monopoly in northern New Jersey -- it already controls 70% of the flights at Newark Airport.

So, if Southwest decides to challenge Continental on some of its' popular routes, such as Newark to Fort Lauderdale, Fla., it could create a fare war.

Beyond that, the merger is all bad news.

Wake Up and Smell the Price Hikes

Officials of Continental and United have spun their own tales about the benefits of creating the world's largest airline. They will fly everywhere a traveler wants to go, creating a seamless network of efficiency. The two airlines say they have few competing routes, which means they will keep most of their networks intact, and travelers won't experience reduced service or higher fares.

If you believe in fairy tales, the merger will make it a happier flying world for everyone.

The reality is that another major airline merger almost guarantees higher airline ticket prices. There will only be four network carriers left if the Continental-United merger is finalized at the end of the month as expected: American (AMR), US Airways (LCC), Delta (DAL) and the combined Continental-United, which will be called United.

Two years ago, there were six network carriers, before the Delta-Northwest merger reduced the number to five. So it's not hard to imagine the effects of having fewer airlines: We've seen them. Airline prices have increased dramatically in the last year alone, surveys show. Fewer airlines have meant fewer seats. And many of the remaining airlines have also intentionally cut their seating capacity in successful efforts to raise prices for travelers.

Time to Re-regulate the Airline Industry?

One federal lawmaker who has seen through the airlines spin is House Transportation Committee Chairman James Oberstar (D-Minn). He says the Justice Department's approval of the merger shows that Congress needs more authority over airlines to prevent further consolidation at the expense of consumers. At a June congressional hearing, he accused Continental and United executives of hating competition and attempting to dominate the air travel market.

In a recent statement, Oberstar said the merger of the two airlines will force him to seek re-regulation of the airline industry.
"When Congress deregulated the airlines in 1978, we were promised better service, added competition and more choices for consumers,'' he said. "With the United-Continental merger, our domestic carrier fleet will have shrunk to four network carriers. Can a US Airways-American Airlines merger be far behind?"

No, not far behind at all: If you follow media reports on the issue, it certainly seems conceivable US Airways and American could merge, leaving only three network carriers.

Discount Carriers Can't Make Up for Lost Routes, Seats


Sure, there are other airlines. Discount carriers such as Southwest and JetBlue add some competition, offering travelers another choice. But many business travelers shun the discount airlines because of their lack of first class sections and airport lounges.

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The merger of Continental and United is certainly going to have a big effect on many travelers. A report by the Government Accountability Office, the investigative arm of Congress, found that combining the two airlines will affect 35 million domestic travelers. Perhaps the worst off may be travelers to and from Cleveland, the site of Continental's smallest hub. Airline simulations have shown that Cleveland could lose up to 52% of its current Continental-United departures and 92% of flights from its regional carriers.

Continental and United officials have guaranteed to keep 90% of existing flights for two years, but after that, all bets are off.

Delta airlines has been shrinking its Cincinnati hub since the merger with Northwest Airlines in 2008. Its Detroit hub is only several hundred miles from Cincinnati. Likewise, United's Chicago hub isn't that far from Continental's Cleveland hub.

And there will be other losers.

The GAO report found that Continental and United are the only carriers on at least seven major nonstop routes in the US.
For example, Cleveland to Denver, Cleveland to Washington (Dulles), Houston to San Francisco and Newark to San Francisco routes will all be left with just one airline, and most likely reduced capacity after completion of the merger.

However the GAO maintains that travelers will still have choices in six out of seven cases, because of nearby alternative airports.

The argument is preposterous. Sure, a traveler at Newark Airport, for example, could access JFK or LaGuardia airports to fly an alternative airline to San Francisco, but it could take more than two hours of additional traveling time to reach either of those airports, located in the New York borough of Queens. Time is money, particularly for business travelers.

The Final Hurdle: Judge Richard Seeborg

The only hope now that the merger could be stopped rests in the hands of a federal judge sitting in San Francisco. California District Judge Richard Seeborg is considering whether to delay the merger of Continental and United as he decides on the merits of an antitrust lawsuit filed by current and former travel agents. The agents maintain that the merger will bring higher airline prices. The judge promised he will rule by Oct. 1. Coincidentally, that's the same day that Continental and United plan to merge by. If the judge finds the travel agents case has merit, he could order a jury trial, delaying the merger.

The stars have aligned for Continental and United officials so far. We will know in the next few days whether they should break out the champagne. More than likely, this is a done deal.

As for me, I just hope the new combined airline doesn't start charging for Coca-Cola.
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