Reasons for the merger
According to United and Continental, the merged entity was expected to benefit from a more comprehensive route network to customers of both airlines, increased profitability, and sustainable long-term value for shareholders through synergy and expanded business relationships with suppliers, business service partners, and corporate customers. The merged entity benefits from a combination of United’s strong presence in the west of the U.S. and Pacific region and Continental’s presence in the southern and eastern states and Latin America. According to ACI, benefits from synergy to the extent of $1 billion to $2 billion were expected, out of which $800 million to $900 million was to come from additional passengers gained from the merger.
Problems of the merger
The United (UAL) and Continental merger has been an example of how some mergers can turn complex and require more time to stabilize than initially expected.
The merger of Delta and Northwest, on the contrary, was smooth. Pilots of Delta and Northwest agreed to a joint contract on the day the merger closed. This was possible since only a small percentage of Delta’s employees belonged to unions, which made labor negotiations faster and easier.
The industry has gone through consolidation, with many mergers. The latest merger was between American Airlines and U.S. Airways to form American Airlines group (AAL). In 2011, Southwest (LUV) acquired AirTran Airways, and in 2009, Republic Airways (RJET) purchased Midwest and Frontier.
© 2013 Market Realist, Inc.
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