News: United and Continental discuss possible merger
Flights > News > # 1122 (14/12/2006)
The Independent has reported that two of the biggest airlines in the United States have begun merger talks.
United Airlines, the second largest carrier in the US, is in discussion with its smaller rival Continental, in a move that experts predict could kick off a wave of consolidation among the struggling US aviation industry. Another US airline, AirTran, has already made a hostile $290m bid for Midwest Air, and last month US Airways made an audacious $8bn bid last month for Delta, the No3 carrier, which is restructuring under Chapter 11 bankruptcy protection.
The traditional US airlines have taken a battering from the emergence of budget carriers like Southwest and Jet Blue on the domestic front, and have not fared much better on overseas routes against their more service oriented international rivals. United only emerged from Chapter 11 in February. Continental has twice in its history had to file for bankruptcy protection, most recently in 1990.
United currently operate flights from London Heathrow to five US cities, Chicago, Los Angeles, New York, San Francisco and Washington D.C, and from Manchester to Chicago. Continental has opened up a network of flights to New York Newark from British regional airports over the last few years, as well as offering flights from London Gatwick to New York, Cleveland and Houston.
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Any merger between the major US carriers would be long overdue, considering how many times these behemoths had previously sheltered behind Chapter 11 bankruptcy protection or government handouts to keep them afloat. For too long, the US airline industry has been plagued with too many backward thinking airlines chasing too few customers through too many congested airports. The no-frills revolution might well have started in the USA, courtesy of Southwest Airlines, but it has really developed at a galloping place within Europe. Meanwhile, the so-called “legacy” system has welded the US major airlines to a network of hub airports, where local political interests have fought to maintain services which have long since stopped becoming commercially viable.
We take it for granted that we have a choice of three major British scheduled airlines offering long-haul flights from Heathrow (British Airways, Virgin Atlantic and BMI), but even the biggest US hub airports are often reliant on just one major carrier - for example Delta at Atlanta, American Airlines at Miami or United at Washington Dulles. Despite the USA having over six times the population of the UK, only a very small number of cities have true competition between different hub carriers - perhaps just New York, Chicago and Los Angeles. This lack of competition is unhealthy, but any reduction in the number of connections through these hub cities can rapidly create a snowball effect, as fewer transfer options means fewer inward feeder flights, and so on. This has meant that the US major carriers have been locked in an unnatural game which none of them can win, without the inevitable mergers and consolidations. Airlines like a Pan Am and TWA might now be a distant memory, so how much would passengers stand to lose if these merger talks progressed, and if rumours of a possible merger between Delta and US Airways also proved to be true? Would this ultimately end up with American Airlines being forced to pair with Northwest?
Looking at these possible collaborations from an unemotional viewpoint across the other side of the pond, should we really be bothered by what happens in the USA? In the first instance, a properly competitive US aviation market is of primary importance to airlines like British Airways and Virgin, who want to see a level playing field between the way they are treated by the UK government, and the way they perceive that the US government is continuing to give its own airlines favourable treatment. None of the above-mentioned tie-ups are between airlines which are members of the same partnership group, although in a slightly different vein, British Airways have tried previously to merge with American Airlines - both of whom are major players in the One World alliance.
A merger between United and Continental might also have some impact on the route networks between the UK and the USA. Whilst United have never had much success at UK airports outside London, preferring instead to work in partnership with fellow Star Alliance member BMI on some flights to the USA from Manchester, Continental is a major player at numerous UK regional airports.
Continental might be smaller than United, but it has by far the biggest operation in the New York area, operating a vast network of flights from New York Newark to UK cities, including Birmingham, Belfast, Bristol, Edinburgh, Glasgow and Manchester; as well as London Gatwick. United, which operates a small network of flights from New York JFK, has recently offloaded its right to operate the lucrative London Heathrow to JFK route to Delta. A merger with Continental might give United much needed access to the New York market, which might reopen the possibility of flights to the Big Apple starting from cities such as Newcastle, Cardiff or Leeds.
