That’s what I’m hearing. This comes on the heels of a USAir hostile take-over bid for Delta Airlines last month for $8.7 billion.
From a business viewpoint, it looks like it makes sense, since each airline is focused on different regions, although they share many of the same routes, especially between each other’s hubs.
Chicago-based United is the nation’s fourth-largest carrier in terms of passenger traffic and is strong in the Midwest and Asia. It has major hubs in Denver, Chicago and at Washington’s Dulles International Airport. Its parent company, UAL, has a market capitalization of about $4.8 billion.
Houston-based Continental is the nation’s sixth-largest carrier and has major hubs in Houston, Cleveland and Newark. It has strong links to Europe, the Caribbean and Latin America. It has a market capitalization of about $3.9 billion.
Nothing is set in stone, and there are a few things standing in the way such as:
- Approval by federal regulators
- An agreement between Northwest Airlines and Continental that gives Northwest the means to block a merger
What does this mean?
Well for the carrier employees, it likely means layoffs as duplicate flights are cut.
For carriers, it means lower overhead costs, which ideally would be passed onto the customer. Logically-speaking, many people would believe less competition means higher prices, but I point you to an article on a study done in 2000 specifically around airline mergers.
The study by the Economic Strategy Institute, a free market-oriented public policy research group, analyzed 322 individual markets currently served by the six carriers with the largest networks.
Assuming consolidation into three carriers, it found competition would soar 74 percent among markets with access to two or more major metropolitan centres, or “hubs,” while decreasing in 13 percent of cases and remaining unchanged in another 13 percent.
Who knows what it means to frequent fliers – my first guess is our status and the our points would be devalued as consolidation takes place. We’re talking more frequent fliers on less flights and more points being spent on less flights. On the flip side, it also opens up the possibility of more destinations so who knows?
I guess we’ll find out, shortly.