United-Continental merger would have little local impact

United Airlines and Continental Airlines Inc. have reportedly reached a merger agreement, and a deal could be announced Monday if their respective boards approve the all-stock transaction.

What would the combination, creating the world's largest airline, mean to Philadelphia, and to the flying public?

People familiar with the talks say the new airline would be named United, based in Chicago, and headed by Continental chief executive officer Jeffery A. Smisek, who took over in January.

United CEO Glenn F. Tilton would be chairman, according to several reports.

United's board reportedly met Friday to vote on the deal, and Continental's board met Friday and is expected to vote Sunday.

The airline, which would be even larger than Delta Air Lines Inc., which merged with Northwest Airlines Corp. in 2008, would transform the industry, but it would not likely have a big effect at Philadelphia International Airport.

The two carriers have a relatively small presence here.

United transports 5.6 percent of passengers from Philadelphia, with 17 daily flights to Chicago, Denver, San Francisco, Los Angeles, and Washington Dulles.

Continental shuttles 2.2 percent of Philadelphia travelers on 15 daily flights to Houston, Cleveland, and Newark, N.J.

In contrast, US Airways Group Inc., Philadelphia's dominant airline, flies 68 percent of passengers on 400 daily flights from here.

A new United might not grow in Philadelphia because it has an East Coast hub at Dulles. Continental has a major hub in Newark.

"This is a merger of two carriers that really do not have a very big presence" in Philadelphia, Fitch Ratings Inc. airport bond analyst Seth Lehman said.

"Therefore, from Philadelphia airport's perspective, they shouldn't see any major shifts in traffic and service."

Passengers could see higher fares on some routes, although United and Continental do not have many overlapping nonstop flights, said Rick Seaney, CEO of Farecompare.com, an airline price-comparison Web site. "The only overlap is in their hubs, and it's a small number of flights."

Prices would remain stable in cities where there is competition from low-cost airlines such as Southwest Airlines Co., JetBlue Airways Corp., and AirTran Airways.

"The bottom line is, prices are going up anyway, regardless of this merger," Seaney said. "Airlines came off decade lows last year. Prices have nowhere else to go but up. The only question is how high."

US Airways and United were in merger talks until two weeks ago, when Continental learned of the discussions and restarted negotiations with United that it broke off two years ago.

Lehman wonders whether US Airways will look for another merger partner in order "not to be left as an outlier, as a small airline."

US Airways is the smallest of the "legacy" network hub-and-spoke carriers and ranks sixth in traffic.

"Ultimately, airlines want a better economic situation by having a smaller group of carriers with better pricing power," Lehman said. "As passenger demand fell the last two to three years, fares went down dramatically just to keep travelers coming on their planes."

US Airways CEO Doug Parker, a big proponent of more industry consolidation, predicted last week that there would be more mergers. He said US Airways would be part of that mix.

A combined United-Continental would be "the best global network in terms of one-stop shopping that corporate travel buyers like," said Robert W. Mann, an aviation consultant in Port Washington, N.Y.

Continental's strong presence in New York and the Pacific market would complement United's routes, Gimme Credit L.L.C. bond analyst Vick Bryan said in a research note last month. A United-Continental combination could generate nearly $2 billion in revenue and cost savings, she said.

"Continental has strength in the Southwest, a tremendously powerful hub at Newark and New York, and a South Pacific entity, as opposed to United's strength in the North Pacific," Mann said. "Continental is much stronger on the Atlantic, and in markets like Africa. There's really no overlap between those businesses."

Continental and United combined have 32 daily flights from Philadelphia, with no overlap.

Continental Airlines:

5 flights to Houston

Continental Express:

6 to Cleveland

4 to Newark, N.J.

United Airlines:

4 to Chicago

2 to Denver

2 to San Francisco

2 to Los Angeles

United Express:

3 to Chicago

4 to Dulles

Market share:

Continental 2.2 percent

United 5.6 percent

SOURCE: Philadelphia Division of Aviation - April 2010 departures by carrier and regional reports, and February 2010 market share by total passengers.

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Jeffery A. Smisek would become chief executive of a combined airline.

Age: 55.

January 2010: Named Continental Airlines CEO, chairman, and president.

2008: Named chief operating officer and president.

2004: Named Continental's president.

1995: Joined Continental as senior vice president and general counsel.

1983: Vinson & Elkins L.L.P., Houston; became partner in 1990.

1982: Harvard Law School, J.D., magna cum laude.

1976: Princeton University, B.A., summa cum laude, economics.

Glenn F. Tilton would become chairman of a combined airline.

Age: 62.

September 2002: Named United Airlines CEO, chairman, and president.

2001: Named Texaco Inc. chairman and CEO; vice chairman Chevron Texaco Corp., and interim chairman of Dynegy Inc.

1997: President of Texaco Global Business Unit.

1995: President of Texaco USA.

1989: President of Texaco U.S. refining and marketing, and vice president Texaco Inc.

1970: Joined Texaco.

1970: University of South Carolina, B.A.

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