United, Continental to form single airline

United, Continental to form single airline    United Airlines and Continental Airlines announced Monday morning they have agreed on a merger that would create the world’s largest airline.
   Under the $3 billion stock swap, United shareholders would own 55 percent of the company and Continental shareholders the remainder.
   Combining the two carriers would create an airline with an enormous global route structure with minimal domestic overlap serving 370 destinations. United has a huge presence in the Asia/U.S. market and Continental is strong in Latin America. United’s U.S. hubs are in Los Angeles, San Francisco, Denver, Chicago and Washington, D.C. Continental has hubs in Houston, Cleveland and Newark, N.J.
   The new company will operate under the brand name United Airlines, but incorporate the Continental logo and livery on its planes. The holding company will be called United Continental Holdings Inc. and be based in Chicago, where United is headquartered.
   The proposal also is important for freight forwarders that deal with the cargo divisions of both airlines to move shipments for customers in the belly holds of their planes.

Tilton

   Glenn Tilton, chairman and chief executive officer of United, will become chairman of the new company and Jeff Smisek, Continental’s chairman and CEO, will be its chief executive. Smisek will become executive chairman of the board after Tilton ceases to be non-executive chairman in two years.

Smisek

   Tilton has been a major proponent of consolidation in the airline industry, saying it’s the only way carriers can survive because there is too much capacity to maintain sustainable fares.
   Last year Continental lost $282 million as revenue tumbled 17 percent to $12.6 billion. United parent UAL Corp. lost $651 million as revenue fell 19 percent to $16.3 billion.
   United reported a net loss of $92 million in the first quarter, but it had an operating profit of $58 million. It is the first time the company has had an operating profit since the first quarter of 2000.
   “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. This combination will provide a strong platform for sustainable, long-term value for shareholders, opportunities for employees, and more and better scheduled service and destinations for customers,” Tilton said in a statement.
   Robert Crandall, former president and chairman of American Airlines, last week criticized the notion that airlines need to consolidate to improve service and profitability. Speaking at an aviation industry summit hosted by the U.S. Chamber of Commerce, the chairman emeritus of AMR Corp. said consolidation is “antithetical to the interests of consumers and providers” and that mergers “masquerade as innovation.”
   Tilton was supposed to attend the event, but was noticeably absent as rumors about the United-Continental deal swirled among aviation stakeholders.
   The carriers said the merger is expected to deliver $1 billion to $1.2 billion in new value per year by 2013, including $800 million to $900 million of incremental annual revenues from additional international services and up to $300 million per year in savings from cutting redundant costs. The companies intend to reduce headcount through retirement, attrition and voluntary programs.
   The airlines said they intend to finalize the deal by the end of the year, but it must first receive antitrust approval from the U.S. Justice Department. The Bush administration approved the Delta Air Lines acquisition of Northwest Air Lines two years ago, but it is unclear if the Obama administration will be as receptive to a merger that would leave the industry with just three major international carriers, including American Airlines. Consumer advocates are expected to argue that fewer air travel choices will lead to higher fares. ' Eric Kulisch