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 process started in May 2010 and took more than one and a half years to get an operating certificate.
- Even after four years, it has yet to complete union negotiations. The cabin crews and mechanics still work separately in different information-technology systems. The significant differences in labor contracts between United and Continental, along with the majority of employees belonging to unions, caused the difficulty.
- Customer service has deteriorated, as the company faces problems in integrating its reservation system after the merger. The DOT imposed a fine of $3,50,000 on United last year for delaying more than 9,000 refund requests from passengers. The company attributed the delay to the backlog created because of the merger.
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.