United, Continental Agree To Form Voltron Of The Airlines

By Marcus Gilmer in News on May 3, 2010 2:00PM

In the wee hours of this morning, United and Continental announced that after several attempts and years of wrangling, they've officially agreed to a merger which will create the world's largest airline. The HQ for the new airline - which retains the name United - will be right here in Chicago (77 W. Wacker Drive), but its main hub will be Houston (where Continental is based) and operational headquarters will be at the Sears Tower Willis Tower the really tall building downtown that people can't agree on what to call per an earlier deal with the city that will put about 3,000 employees in that office. Based on 2009 numbers, expected revenues of the new mega-airline would come in around $29 billion with $7.4 billion in unrestricted cash (no word on how much of that comes from the bullshit baggage fees). The deal still has to be approved by federal regulators, but as Crain's points out, there aren't a whole lot of differences between this merger and the Delta-Northwestern merger.

Continental and United overlap on 13 nonstop routes, compared with 12 overlaps in the Delta-Northwest deal, according to J. P. Morgan analyst Jamie Baker. Of the overlapping United-Continental routes, 11 would have just one or two carriers. Baker gave the deal a 75 percent chance of winning regulatory approval. Regulators like to see as much competition as possible on each route because it helps keep fares down.

But both airlines have been hit by the recent recession with Continental losing $282 million in revenue last year and United losing even more at $651 million. Still, the new airline would surpass the new merged Delta and American Airlines in terms of size and reach, with major hubs in New York, San Francisco, Houston, and Los Angeles while splitting a hub with American here in Chicago. Atlanta will (forever?) remain Delta's main hub. And the new airline, which will hit customers up with the tagline "Let's Fly Together," hopes to woo away a bevy of corporate travelers from those other airlines, particularly Delta. The two combining airlines hope to wrap things up by the fourth quarter of 2010, just in time to up baggage fees for the holidays.

Perhaps even more importantly for Chicago, as Crain's explains, the merger may bring in more money to O'Hare but give United even more power in attempting to block expansion at the airport.