United and Continental to Merge, Consumers to Pay?

Prices may gain altitude

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Back in early April, the Wire brought you business analysts' thoughts on rumors of merger talks between United Airlines and US Airways. At the time, some wondered about whether American and Continental, rival airlines "left out in the cold," would contemplate their own deal.

Scratch that: it seems the four airlines have switched partners. Early Monday morning United and Continental announced their intended marriage. It's a big merger, and there are some obvious worries for consumers.

  • Higher Prices "The merger of behemoths is rather obviously very bad for consumers," writes James Joyner at Outside the Beltway. "And, in this case, that's the whole point." He notes that he's "not getting any sense that this will have any real trouble going through" the anti-trust mechanisms, despite the populist mood right now.
  • Obvious Anti-Trust Issues Not So Obvious, agrees The American Prospect's Tim Fernholz. Though the deal is specifically designed to drive up prices, "with both airlines losing money by the hundreds of millions per year, it's hard to see the Justice Department blocking the move for the sake of anti-trust concerns." He is intrigued by a detail in the numbers:
I was also surprised to note that the new airline will control only 21 percent of domestic capacity and just 7 percent of the world's market share. While I'm not displeased by the fact that the biggest airline's reach isn't much larger than its competitors, it is surprising that no airline has been able to exert real domination across global flight markets -- probably a legacy of traditionally strict regulation on the sector.
  • Equal ... ish "The companies insisted the deal is a merger of equals," write the AP's Joshua Freed and David Koenig in their analysis. "But United shareholders will hold a majority stake, the airline will be based in United's hometown of Chicago and it will be called United," they deadpan. They do note, though, that the new company will be run by the current Continental CEO.
  • 'Expect Layoffs and Strikes,' says Douglas McIntyre, writing for Daily Finance. "Any large airline merger is done to improve efficiency and that nearly always means closing redundant routes. Mergers also usually lead to layoffs--a tactic combined carriers use to reduce costs."
This article is from the archive of our partner The Wire.