United and Continental Airlines are counting on more business travellers - not higher fares for holidaymakers - to make their US$3 billion ($4.1 billion) merger pay.
United chief executive Glenn Tilton and Continental chief executive Jeffery Smisek confirmed yesterday that the US's third- and fourth-largest airlines will consolidate into the
world's biggest, surpassing Delta Air Lines in size.
They hope to draw more business travellers who will pay top dollar for last-minute tickets. It's a stock swap deal in which United acquires Continental, and the new airline is to be called United.
Both airlines have been losing money, from high fuel prices and the recession. They say their combined network across the US and the world will attract enough corporate travellers to boost revenue by up to US$900 million a year.
"The only people happier than Jeff and I today is our corporate sales team," Tilton said.
Henry Harteveldt, a travel-industry analyst for Forrester Research, said US leisure fares probably won't change much because Continental and United routes overlap heavily with low-fare carriers such as Southwest.
They compete with discount carriers on 92 per cent of the 50 biggest routes they serve, Harteveldt said.
"The leisure market is always hotly contested," so it's less likely to tolerate fare increases, he said. "Business travellers are less price-sensitive. They have to get on that plane, so they'll pay more for those flights."
Antitrust regulators will examine the deal for its effect on fares, but Smisek and Tilton said even the larger United won't be able to boost prices, because other carriers might undercut them.
The carriers said they would file their applications quickly with regulators including the Justice Department and the European Commission.
Justice Department spokeswoman Gina Talamona said its antitrust division "Is looking at the proposed transaction between these two airlines".
The department routinely examines airline deals, which may affect services and prices for consumers. Smisek said United and Continental would seek shareholder votes in September, hoping to close the deal by year's end.
- AP
