United and Continental in Merger Talks

The merger that has been predicted for long time appears to be closer than ever to fruition. It is being reported that Chicago-based United is in merger discussions with Continental Airlines, based in Houston, Texas. The surviving company would be called United and headquartered in Chicago. This has come about after merger discussions between United and US Airways recently fell apart, as discussed in this Hat Trick post.

This could be an interesting merger. Both Continental and United have attempted to distinguish themselves as premium global airlines, with Continental known for their good customer service. This would be a good combination compared with US Airways, a company not known for its stellar relationships with customers. Continental and United have also formed a close partnership since Continental joined the Star Alliance last fall including providing complimentary upgrades to elite status customers, an arrangement that Continental previously had with its Sky Team alliance partner Northwest (now Delta). While United and US Airways have been Star Alliance partners for several years they have never extended upgrade benefits to each other's elites.

The Hat Trick has some thoughts on this potential merger, both positive and negative, so let's take a look at this merger.

Pros:

1. Overall Network: Both airlines have a global network, including solid coverage in both Europe and Asia. Continental is stronger in Europe, United stronger in Asia.
   
2. Domestic Network/Hubs: United and Continental both have strong domestic networks with coverage on the West Coast, Midwest, South and the East Coast. United has hubs at Chicago O'Hare (ORD), Denver (DEN) and Washington Dulles (IAD) as well as focus cities at Los Angeles International (LAX) and San Francisco International (SFO). Continental has hubs at Newark Liberty International (EWR), Houston Intercontinental (IAH), Cleveland Hopkins International (CLE) and Guam (GUM) where Continental Micronesia is headquartered.
   
3. Newark Hub: The Newark hub has a strong hold on the New York City market and a strong gateway to Europe.
   
4. Product: Continental has a strong in-flight product and United's is not terribly far behind Continental's.

Cons:

1. Competition: it's never great when you lose a competitor. Airlines always make the case that consolidation is consumer-friendly but it generally works the other way. Cities in the Midwest and some cities in the West could see higher fares as a result of a combined United-Continental.
2. Labor Issues: United hasn't exactly had the best labor relations whereas Continental has pretty good labor relations with its workforce over the years.
   
3. Fleet Commonality: United has designated the Airbus 319 and 320 as its primary domestic workhorse after retiring the 737-300/500 fleet last year (as well as assigning a lot of this flying to their regional affiliates). Continental is all Boeing, all the time. Their only crossover aircraft is the 757-200/777-200 but I believe they operate different engines on these jets and I believe Continental has more ETOPS jets.
   
4. Cleveland Hub: If you live in or travel to Cleveland Hopkins like the Hat Trick (my mother lives in the Cleveland area) then you can expect to lose your hub status. This would be a blow for the city even though Cleveland has experienced a serious decrease in Continental flying over the past few years, particularly with the loss of mainline flying.

These are just some initial thoughts on this potential merger. We'll see where it goes and what type of response, if any, you will see from both companies' competitors, notably American. Could be some interesting times ahead!