The only good news about the merger between United (UAUA) and Continental Airlines (CAL) is that it will bring Southwest (LUV) into the mix at Newark Airport, giving the carrier a much larger presence in the New York market. United and Continental were granted permission to merge from the antitrust division of the Justice Department after Continental agreed to lease gates to Southwest.

The agreement will allow Southwest to operate 18 daily round-trips from Newark beginning next March. Until now, Southwest's presence in the New York market has been fairly limited, with only a few departures a day from LaGuardia Airport in Queens.
Airline ticket prices at Newark are the highest in the Northeastern U.S. because of Continental's near monopoly in northern New Jersey -- it already controls 70% of the flights at Newark Airport.

So, if Southwest decides to challenge Continental on some of its' popular routes, such as Newark to Fort Lauderdale, Fla., it could create a fare war.

Beyond that, the merger is all bad news.

Wake Up and Smell the Price Hikes

Officials of Continental and United have spun their own tales about the benefits of creating the world's largest airline. They will fly everywhere a traveler wants to go, creating a seamless network of efficiency. The two airlines say they have few competing routes, which means they will keep most of their networks intact, and travelers won't experience reduced service or higher fares.

If you believe in fairy tales, the merger will make it a happier flying world for everyone.

The reality is that another major airline merger almost guarantees higher airline ticket prices. There will only be four network carriers left if the Continental-United merger is finalized at the end of the month as expected: American (AMR), US Airways (LCC), Delta (DAL) and the combined Continental-United, which will be called United.

Two years ago, there were six network carriers, before the Delta-Northwest merger reduced the number to five. So it's not hard to imagine the effects of having fewer airlines: We've seen them. Airline prices have increased dramatically in the last year alone, surveys show. Fewer airlines have meant fewer seats. And many of the remaining airlines have also intentionally cut their seating capacity in successful efforts to raise prices for travelers.

Time to Re-regulate the Airline Industry?

One federal lawmaker who has seen through the airlines spin is House Transportation Committee Chairman James Oberstar (D-Minn). He says the Justice Department's approval of the merger shows that Congress needs more authority over airlines to prevent further consolidation at the expense of consumers. At a June congressional hearing, he accused Continental and United executives of hating competition and attempting to dominate the air travel market.

In a recent statement, Oberstar said the merger of the two airlines will force him to seek re-regulation of the airline industry.
"When Congress deregulated the airlines in 1978, we were promised better service, added competition and more choices for consumers,'' he said. "With the United-Continental merger, our domestic carrier fleet will have shrunk to four network carriers. Can a US Airways-American Airlines merger be far behind?"

No, not far behind at all: If you follow media reports on the issue, it certainly seems conceivable US Airways and American could merge, leaving only three network carriers.

Discount Carriers Can't Make Up for Lost Routes, Seats

Sure, there are other airlines. Discount carriers such as Southwest and JetBlue add some competition, offering travelers another choice. But many business travelers shun the discount airlines because of their lack of first class sections and airport lounges.

The merger of Continental and United is certainly going to have a big effect on many travelers. A report by the Government Accountability Office, the investigative arm of Congress, found that combining the two airlines will affect 35 million domestic travelers. Perhaps the worst off may be travelers to and from Cleveland, the site of Continental's smallest hub. Airline simulations have shown that Cleveland could lose up to 52% of its current Continental-United departures and 92% of flights from its regional carriers.

Continental and United officials have guaranteed to keep 90% of existing flights for two years, but after that, all bets are off.

Delta airlines has been shrinking its Cincinnati hub since the merger with Northwest Airlines in 2008. Its Detroit hub is only several hundred miles from Cincinnati. Likewise, United's Chicago hub isn't that far from Continental's Cleveland hub.

And there will be other losers.

The GAO report found that Continental and United are the only carriers on at least seven major nonstop routes in the US.
For example, Cleveland to Denver, Cleveland to Washington (Dulles), Houston to San Francisco and Newark to San Francisco routes will all be left with just one airline, and most likely reduced capacity after completion of the merger.

However the GAO maintains that travelers will still have choices in six out of seven cases, because of nearby alternative airports.

The argument is preposterous. Sure, a traveler at Newark Airport, for example, could access JFK or LaGuardia airports to fly an alternative airline to San Francisco, but it could take more than two hours of additional traveling time to reach either of those airports, located in the New York borough of Queens. Time is money, particularly for business travelers.

The Final Hurdle: Judge Richard Seeborg

The only hope now that the merger could be stopped rests in the hands of a federal judge sitting in San Francisco. California District Judge Richard Seeborg is considering whether to delay the merger of Continental and United as he decides on the merits of an antitrust lawsuit filed by current and former travel agents. The agents maintain that the merger will bring higher airline prices. The judge promised he will rule by Oct. 1. Coincidentally, that's the same day that Continental and United plan to merge by. If the judge finds the travel agents case has merit, he could order a jury trial, delaying the merger.

The stars have aligned for Continental and United officials so far. We will know in the next few days whether they should break out the champagne. More than likely, this is a done deal.

As for me, I just hope the new combined airline doesn't start charging for Coca-Cola.

Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

what a stupid way to end an article.....I HOPE THEY DONT START TO CHARGE FOR COCA COLA.....

September 27 2010 at 3:53 PM Report abuse rate up rate down Reply

Randy Diamond is a jerk. Just one more overweight, complaining whiner. It's ALL about him isn't it? You ever notice how he never mentions the hard working employees of these companies? The airlines have to consolidate in order to survive! If the airline goes under, tens of thousands of people lose their jobs. People got spoiled in the 1980's and 90's when everything seemed so prosperous and wonderful. They got more and better food, entertainment and more space on flights. Then the economy crashes and all the little niceties get yanked in order to keep the planes flying. Employees took 30-40% pay cuts, lost their pensions and work harder than ever. It is a joy for me to see these legacy carriers get back on their feet. They can and should charge a fair rate and they deserve to make a profit just like any other business. I'm sick of all the complaining over the fee for a service that we are unbelievably fortunate to have. Just stop and think for a minute what most of our lives would be like without the convenience of air travel. Sure, rail is an option, so is the bus or your vehicle...sure it is.

September 21 2010 at 10:50 AM Report abuse rate up rate down Reply

Well I guess it is a good thing that where I go so do other in non-American carriers. And with that I get full service, no extra fees and a decent seat that is not like sitting in a sardine can!

September 21 2010 at 1:31 AM Report abuse +1 rate up rate down Reply

Since when has it been wrong for a company to make an honest profit. If a flight costs $10,000 to operate, the company should be able to make that back, plus a profit. Most airlines made money in the last two quarters, that means something is going right. For a general public who claims to hate flying, you guys are sure flying alot.

September 20 2010 at 11:37 PM Report abuse +1 rate up rate down Reply

This is not the first merger in which travelers lost. When American Airlines acquired Trans World Airlines, air travelers were not the only losers, but also the people of St. Louis. Eight years ago, American had 417 daily flights out of St. Louis to 95 cities, including Honolulu and London-Gatwick. Now, AA only has 36 daily flights to nine cities. St. Louis has no direct air connections to Europe or to the Pacific, resulting in lost business and lost jobs in the St. Louis region. If there's one city that will be hurt most by the United-Continental merger, it will most likely be Cleveland.

September 20 2010 at 10:27 PM Report abuse rate up rate down Reply

Now more than ever we need high speed rail!

September 20 2010 at 9:27 PM Report abuse -1 rate up rate down Reply
1 reply to jefflyall's comment

So, if Southwest decides to challenge Continental on some of ***its'*** popular routes....please, please, please, please, please, please, if you are going to be calling yourself "journalist", you need to adhere to high standards of English, which we all holler that the immigrants ought to speak as of yesterday, and eliminate the APOSTROPHE (') from the POSESSIVE NEUTER PRONOUN, as Sister Greogry Anne bashed into our knuckles with a ruler as children. Detention for you! Write 500 times on the blackboard.... NO APOSTROPHE (') IN THE POSESSIVE NEUTER PRONOUN!!! ITS not IT’s nor ITS’ NO APOSTROPHE (') IN THE POSESSIVE NEUTER PRONOUN!!! ITS not IT’s nor ITS’ NO APOSTROPHE (') IN THE POSESSIVE NEUTER PRONOUN!!! ITS not IT’s nor ITS’ NO APOSTROPHE (') IN THE POSESSIVE NEUTER PRONOUN!!! ITS not IT’s nor ITS’ and so on...

September 20 2010 at 8:48 PM Report abuse -1 rate up rate down Reply

I think in all this merger talk that reference and fair due is not made to history. Specifically at one time, the Pennsylvania and New York Central Railroads were considered powerhouses in their own rights in the transportation industry. They merged their considerable forces and found out that it was a no go and ended up in bankruptcy and a part of history. Airlines, too, will go the way of the dodo birds, victims of their own excesses and technological advances that render them outdated. It's a matter of time.

September 20 2010 at 7:49 PM Report abuse -1 rate up rate down Reply

As someone that flies 250,000 miles a year, I can agree partly with the authors premise regarding business travelers not flying on discount airlines due to the lack of 1st class seating and airport lounges. However, the author seems to discount other important aspects of flying frequently with major carriers - expedited security lines, no baggage fees, the comfort of knowing that you will make the next flight if you misconnect and priority boarding. The 1st class upgrades are really nice (and as a Delta Diamond, I've come to expect them) and the lounges are wonderful places to escape from rookie travelers and rambunctious kids, but the other perks are important too. Not only that, but I won't be stuck next to the unbathed passenger that escaped from Greyhound like those you see on Southworst.

September 20 2010 at 6:20 PM Report abuse +1 rate up rate down Reply
1 reply to trconsulting's comment

You are so full of it......the reason I say this is because you fly the worst airline on the planet...almost. It is called Delta!!!

September 21 2010 at 1:34 AM Report abuse +1 rate up rate down Reply

Oh come on you all have a choice, if you dont like it dont Fly. When did it become a Human Right that everyone should be able to fly and fly cheap? They are a buisness and guess what they can jack up the price as much as they want to. Beleivie it or not when nobody is flying they will lower the fair. I fly 150,000 miles a year on average and i only fly American and sometimes southwest, you know why buisness people dont want to fly Southwest it has nothing to do with first class it is more teh people who get on a plane and dont know what a bath is or that being 500 pounds squeezing in a seat is not pretty. the major airlines are not excempt with the low fairs all the rift raft get on as well. It isnt the airlines who ruined flying it is the trash who can now fly for $49.

September 20 2010 at 5:30 PM Report abuse +8 rate up rate down Reply