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United-Continental Merger Raises Fare-Price Concerns

13 may 2010 - News - Editor

With any merger between two key players within an economic sector there are bound to be objections from many quarters, as well as concerns regarding competition, or rather lack thereof, and avoiding the creation of a monopoly. The merger of United Airlines and Continental Airlines (the third and fourth largest commercial airlines in the US) is no different, especially when taking into account that the merger will reportedly create the world's largest airline, with estimated revenue of around US$30 billion and carrying in excess of 120 million passengers annually. It has been proposed that the holding company will be called United Continental Holdings, while the airline itself will operate under the banner of United Airlines.

The key objective of the merger is to increase revenue, primarily by means of cost cutting measures. Cost cutting is bad news for employees, especially in a merger, as cutting staff is unavoidable for streamlining the new company. However, it has been made known that labor costs will be steadily reduced, with the proper consultation and negotiations taking place between the respective company's pilot unions and other representative authorities. United Continental Holdings want to ensure that labor disputes are avoided and seniority issues are taken into account when making decisions regarding the workforce. It is estimated that the merger and structuring of the new company will take up to two years to complete. But all of this is no doubt cold comfort to employees whose jobs hang in the balance.

It is generally agreed on Wall Street that the merger will be a good thing. United has a strong position in the Asian and Pacific markets, while Continental is established on the South American and North Atlantic routes. Once the dust settles the restructured company is likely to put a smile on shareholders' faces. There is plenty of grumbling on Main Street, however, as competition between airlines is once again whittled down, resulting in less competition in fare prices, especially along less busy routes that are not serviced by all airlines. For example the smaller cities of Tupelo, Mississippi, and Panama City, Florida, only have one airline servicing their airports – passengers traveling to and from these destinations don't have the option of shopping around for the cheapest flight. One would think that cost cutting measures and increased revenue would result in cheaper fares, but in reality that is seldom the case, as has been seen in previous mergers. Nonetheless, it would appear that, having taken into account all objections, federal regulators will not stand in the way of the United-Continental merger taking place.

 


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