What the United/Continental Merger Means for You
When a San Francisco judge canned a lawsuit brought by 49 unhappy fliers this week, the skies were cleared for United Airlines and Continental to fly as one. The passengers are concerned that the merger will lead to higher fares, and so should you.
The two airlines will technically merge on October 1st, but travelers won't see evidence of the deal for several months. Until then, Continental and United will fly as two airlines. Tickets, frequent flyer points, reservations systems, routes, and check-in counters at most airports will remain separate as well.
The merger creates the world's largest airline, which will service a combined 370 destinations around the world, build up 10 hubs and serve 144 million passengers a year. They will keep the United name, fly under Continental's much-heralded management and will be adorned with a logo using the sans serif font of the United brand with the classic blue globe of Continental under the tagline "Let's Fly Together."
Travelers will not see proof of the merger until at least next spring, says Henry Harteveldt, a travel industry analyst with Forrester Research, since it will likely take 18 to 24 months for the complete merger to take hold. So while what it will mean for passengers is not yet clear, the main concern is how it will affect the cost of getting from Point A to Point B. "Ticket prices are so expensive already," says New York-based doctor Carol Dersak, who travels at least five times a year. Her biggest fear? "With the merger, I'm afraid they will cut flights and cause prices to go up and the quality of service to go down."
So what is going to happen to your frequent flier miles, and and how high will prices go?
What about my frequent flyer miles?
According to Harteveldt, holders of Mileage Plus awards or Continental OnePass points do not need to be too concerned about whether these points will hold their value. But he notes that brand loyalty in the airlines is no longer the marketing force it once was.
"Forrester's research shows only three in ten U.S. travelers are loyal to any one travel company, and this is down from 42 percent in 2002. Punctual departures, reliable service, clean cabins, good customer service, route coverage and fares -- these are the areas in which an airline must be competitive or lose business."
United and Continental are also both members of the Star Alliance, so the name could possibly be the only change (United Red Carpet Club members and Continental Presidents Club members already have access to both lounges). "United's Mileage Plus is a larger program than Continental's OnePass, and as the larger program, and with United being the surviving brand, it's likely that the Mileage Plus name would be the surviving loyalty program brand name," says Harteveldt. In fact, the new frequent flyer program is expected to create an easy blending of valuable features from both programs, according to a special website set up to explain the merger. But then again, the site also states "In our merger plans, we expect to achieve revenue synergies without any increase in fares."
So, really, will prices get even higher?
With one less competitor out there it will now be a landscape of ten airlines managing the domestic lift along U.S. routes. The new United will monopolize some of those routes, such as Chicago and Newark to Houston as well as Newark to Denver and San Francisco. These routes may end up having virtually no non-stop competition and that can mean higher fares, says Harteveldt. "The good news is you still have Southwest, Frontier, JetBlue and Virgin America driving a significant wedge into pricing," he says. "Still, there is a substantial risk that fares will go up."
Travel agencies are already seeing the effect of the merger announcement rumbling their global distribution systems. Susan Tanzman, owner of Martin's Travel and Tours in Los Angeles, notes seeing unprecedented cost fluctuations on seats causing a kind of rush on reservations.
"Because United and Continental are strong carriers to Hawaii, I have been watching fares rise with almost head-turning speed," said Tanzman. "While I waited for a seat that cost $1,400 Friday to go down in price, instead it cost $2,000 Monday." And she doesn't expect it to get much better. "I have been advising clients to book earlier if they cannot be flexible," she says. "And I have to look harder through the database of consolidator and net fares available for these seats as ticketing is getting so much more complicated."
What the experts say
The merger follows announcement that Southwest is buying AirTran as well as the combining of Delta and Northwest Airlines earlier this year. The Delta/Northwest merger has been regarded as nearly seamless in its execution. But it also follows the rocky combination of a bankrupt US Air to America West airlines in September 2005, a marriage of internal cultures that has remained divisive and problematic to this day. "The airlines have learned a lot of hard lessons from these mergers over the past 25 years," says Harteveldt. "I think we'll be seeing some of the benefits of that experience in this merger [between Continental and United]."
"United has advocated for mergers for years so there is no surprise here," says Harteveldt. "Air travel in the U.S. is a mature industry, not like the 1940s and '50s or even the '60s when it was in a growth mode and you had a regulated environment that almost incubated the competition. Since de-regulation we have seen so much consolidation. Airlines need scale and scope to be profitable, but also need to cater to the demands of the customer."
The airlines themselves are obviously looking on the bright side "Building on our Star Alliance partnership, we are creating a stronger, more efficient airline, both operationally and financially, better positioned to succeed in a dynamic and highly competitive global aviation industry," says Glenn Tilton, chairman, president and chief executive officer of UAL Corp. Adds Jeff Smisek, Continental's chairman, president and chief executive officer who will serve as the new company's CEO: "This combination brings together the best of both organizations and cultures to create a world-class airline with tremendous and enduring strengths."
Harteveldt is looking for the positives as well. "There is a significant chance for United and Continental to combine their strengths here and benefit from Continental's stronger customer service and United's premium seating options and airport privileges such as express security lines, plus the combined hub strength of both airlines," he says. "These are the benefits passengers will notice."
Meanwhile, some airline watchers are remaining cautious, especially since past mergers have meant employee morale problems and strikes by pilots who lose seniority over routes and aircraft. "This could be messy," says one senior official at Carlson Wagonlit, a global company specializing in corporate travel. "You have one airline very conscious of comfort and customer service [Continental] merging with another that is not [United]. Hopefully it will mean an improvement of those conditions in the in-flight experience across the board. Traditionally these actions are not smooth and take a lot of heavy management tactics and talent to make happen. Hopefully the industry has learned some tough lessons along the way and maybe the smoothness of the Delta/NWA merger is evidence of that. But somehow I doubt it and believe this merger will see some rocky times ahead."