The Truth About Airline Mergers
United's parent company, UAL Corp., and Continental Airlines Inc. agreed to merge in a stock swap that is valued at $3.2 billion. The deal still has regulatory hurdles to clear, labor integration issues with the unions to resolve and many other factors to overcome.
If it goes through, the number three airline will be merged with the number five airline, creating the largest airline in the world. Together, they would service 370 destinations, 59 countries and 10 hubs.
If that sounds great to you, you may want to think again.
The same is true with airlines, and recent history should give you some indication of how this may play out with Continental and United.
Learn more about previous airline mergers at PeterGreenberg.com.
The fact is, every airline executive will tell you that in order to survive, they have to shrink the airlines. So while the merged United-Continental may officially become the largest airline in the world, how long will that last? Long enough for the new, combined airline to start getting smaller.
The major U.S. airlines have already permanently parked 1,000 planes in New Mexico, Arizona and California during the past two years, which is the equivalent of taking one major airline completely out of business. That's huge!
This summer, we'll see about 23 percent fewer seats available, and no matter what happens to fuel prices, airfare is going up and services will be slashed. If you're in a small community like Bozeman, Montana, or Grand Rapids, Michigan, that is dependent on air service from United and Continental, do you think you'll have eight flights a day? No—you'll have about four.
As for those 10 hubs between the two airlines? That number is also likely to shrink.
My advice: If you have mileage on either carrier, consider redeeming it today. As in now! Even if it means reserving as far out as 330 days ahead. Call me cynical, but mergers don't make me happy.
Watch Peter's special report on the state of the airline industry today at PeterGreenberg.com.
Two years ago, we had six major network air carriers, Now with Continental-United, we'll be down to four. And if US Airways can't stand alone—they have only 8 percent of the market share—it's going to be three. Less competition translates into less service, fewer flights and higher fares.
Fasten your seat belts, boys and girls. It's going to be a bumpy ride.
Peter Greenberg is the Travel Editor of CBS News, host of a nationally syndicated weekly radio program and publisher of travel news site PeterGreenberg.com. He has been a featured guest on The Oprah Winfrey Show, The View, Late Night with Conan O’Brien and Larry King Live.
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