Continental and United Finally Announce Merger, Absolutely Nobody is Surprised

Continental, Mergers/Finance, United

The Continental and United merger has finally been announced, and well, there are certainly more questions than answers at this point. I decided to wait until the official announcement came out, hoping that there would be a ton of information in there. Unfortunately, there’s not. In fact, the only thing that wasn’t already out there was that Continental will keep its own logo and branding but with the Varney name. Just kidding, though that would be awesome. Not sure who Varney is? Read below. (The airline will actually keep the United name.) Though this is being billed as a merger of equals, Continental has to be the one in control here.

United in Name Only

Here’s what we know (and it’s not much). Continental and United will merge into a single brand. The brand will be called United, but everything else will be Continental including the logo, aircraft livery, and general branding. The headquarters will be in Chicago where United is currently based. (This was apparently a condition of the deal, otherwise I’m sure it wouldn’t have been this way.) Continental CEO Jeff Smisek will run the show while United CEO Glenn Tilton will sit up top as Chairman for two years, but probably won’t actually be doing anything. He’ll just get to hang out with his cool-guy title and count all the money he’s made over the last few years.

Really, that’s about all we know. Here are a list of questions that I’d like answered, but I’m sure that won’t happen for a long, long time.

  • Will they keep Economy Plus?
  • Will they keep international First Class?
  • Will their labor groups figure out an integration plan before the America West/US Airways pilots do?
  • Will Channel 9 survive the merger?
  • Will any United execs other than Tilton be asked to stay?
  • If not, which small island country will they buy for their retirement?
  • How long will it be before the Cleveland hub disappears?
  • What will they do for inflight entertainment?
  • Did United really just use US Airways to get Continental back to the table?

I’m sure you have more questions, but we just aren’t going to get any answers for awhile. Though talks had been on and off for some time, this latest round was quick and dirty. I think they just had their checklist of big things to figure out and assumed everything else would work itself out later. Apparently, the pilot integration wasn’t on that list, because that still has to be decided.

Labor will be a big issue here because the cultures at the two airlines are so different. I mean, I hear that people at Continental sometimes even enjoy their jobs. Crazy, right? But the work rules are pretty different and there will be some issues as they try to come together, that’s for sure.

This should be very good news for front line United folks. They’ll finally have a leadership team that’s interested in running an airline instead of prettying one up until someone else decided to come along and buy it. But for Continental people, it’s a mixed bag. They should be able to make some gains in some areas, but having that headquarters move to Chicago threatens the strong culture that has helped Continental succeed in the last 15 years. I’d be cautiously optimistic if I were at Continental, but I’d have a lot of concerns.

Who else will love this merger? No, not US Airways. They’re pretty mad. I Walter Varneywas thinking about Walter T. Varney. Who? In 1925, Walter started Varney Air Service in Pasco, Washington. He sold it in 1930 to United Aircraft and Transport which became United Air Lines in 1933. In 1934, he founded Varney Speed Lines in El Paso, Texas. He got out within a year, but in 1937, the airline would become Continental. Can you imagine what he would think if he saw his two airlines become the largest in the world?

I like this merger a lot from a United perspective, especially if it means fresh blood at the top. For Continental, it’s a bit more of a question mark. If done right, this should be a rock star merger. Now let’s just see if they can avoid screwing it up.

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46 comments on “Continental and United Finally Announce Merger, Absolutely Nobody is Surprised

  1. I’m a 1K and I have many of the same questions you do. For me though, no question is more important than this: Do they have *any* idea how hideous the new logo is?

  2. Very concerned about this – at present, the Continental product sucks ruminant appendage, so I’m hoping your visual will not come to pass, Cranky.

  3. It’ll be fun to see how they integrate the pilot scope clauses. CO pilots currently forbid all the CR7 and E170 flying UA has and have shown no intention of giving up scope.

    1. @Eric – I am not an expert on this, but i am fairly certain the smallest aircraft operated by UA pilots is the A319. The ERjs and CRJs are UAX aircraft.

      1. @Oliver, that’s Eric’s point. UA’s pilot contract allows for regional pilots to fly anything up to 70 seats; CO’s pilot contract only allows regionals to fly up to 50 seats (although I think there’s an exception in there for turboprop flying).

        1. That’s right, there is an exception for turboprops and that’s how the Q400s are being flown by Colgan. On the other hand, United has better work rules for pilots (like crew rest provisions), so it might be an issue of trading off work rules for scope. I can’t imagine they’ll get the same flexibility they have with the current United group.

  4. This is in reference to your B-Net post: to say that a route like DEN-EWR has no competitors is disingenuous, even though it is technically true that there are no other CXRs on that particular nonstop. As a former pricing analyst you should know that CO probably prices EWR=JFK=LGA, so with respect to pricing, there is always competition in the NYC area.

    1. I disagree that co-terminals are true competition. I live in the DC metro area (near IAD) and a comparison between IAD and BWI would be night-and-day. 60 miles is a long drive during rush hour traffic. (And BTW, the prices can be vastly different, too.)

      Likewise, I really wouldn’t consider EWR to be an exact comparison to JFK.

      1. IAD-DCA-BWI are clustered in the same region, but as you said the spread is large, I think they’re the one example that shoots a hole in the City pricing strategy, the consumer is most definitely not indifferent b/w the 3 airports, the distances are too great.

        Better examples of City pricing (vs. Airport pricing) ORD=MDW, DAL=DFW, IAH-HOU, and again: EWR-JFK-LGA. If the consumer sees a difference in fare amounts, it is probably a difference in carrier inventory, not in pricing of the various inventory.

        1. I live in New York too, and I can tell you that EWR serves a very different market than JFK which serves a different market than LGA. The nearby competition may help keep prices down to a certain extent, but to equate them is quite a logical stretch.

    2. I did mention other airports:

      If you include flights to places like Houston/Hobby, New York/LaGuardia and JFK, Oakland, and Akron/Canton (which is a stretch), then the list shrinks further.

      But the reality is that in the US Airways/Delta slot swap ruling, they went out of their way to explain that National is not the same as other Washington markets and LaGuardia is not the same as other New York markets. If that’s how the feds wants to interpret it, then that’s how it’ll be interpreted. (I know we’re dealing with two different bodies of government here, but they seem to agree on this.)

      By the way, regarding pricing, technically National and Dulles are one entity (WAS) and LaGuardia and JFK are one entity (NYC). Newark and Baltimore are separate. But the reality is that they are priced differently using fare rules.

  5. Agree with Dub. the new paint is absolutely hideus. never liked continentals paint in the first place, however.

    1. Yea-it’s kind of a shame they stuck with Continental’s colors. I think United had a better and more recognizable logo. This is where the “merger of equals” negotiation probably came in to play. It was either going to be name or logo and United wanted to keep the name.

      1. I really think the operations guys drove this. They get to just repaint “United” over the Continental name on the ex-CO planes, and repaint the United planes into the new livery as they require it for maintenance.

      2. what a disappointing decision. As a designer, I’ve always thought that Continental’s logo + paint scheme lack any kind of brand definition… that tail logo essentially looks like it could be any off-brand cargo hauler! “globe airways ltd” etc. Not only that, but from the ground / airport the planes blend in too much with their surroundings. NOT a great design strategy. The big “U” on United’s tail is recognizable even from a city corner looking up. More importunatly, it’s unique.

        1. It is a whole different feeling, and as mentioned recognizable. Terminal 1 at O’Hare is gonna be completely different..

  6. I love your last two sentences….pretty much sums up where the employees are on this. CO folks are wary because Jeff has been in the airlines left seat for all of five months; UA people are wary because we all know what G.T. is capable of, given his track record…what is ‘good’ for United tends to be REALLY good for Glenn.

  7. What are they going to do with all those hubs? Speeking of hubs, it’s interesting that at one time CO was hubbed in LAX & UA was in CLE. When UA moved it’s east coast hub to IAD, CO jumped in & the reverse happened at LAX where UA came in when CO left. Yet both airlines coexisted in DEN for menny years, & now that landscape will be forever changed.

  8. I still can’t believe after all these years of taking bonuses off of employees backs while the airline lost money, Glenn Tilton is still going to end up getting what he wanted all along…a merger and one final fat payout. And he found a guy that is willing to do probably 90% of the work while he sits back and drinks martinis. I don’t know if I should still hate him or commend him for being the biggest mastermind of all time. Joke’s on Smisek.

  9. Cranky, the question I have is “will this happen?” Sure they can announce it but it’s a long road to making this a single airline. First of all, will the DOJ regulators approve it? With Obama people in there vs. Bush for the DL/NW marriage could change things. Also, labor could derail this thing, especially the pilots. Lastly, will Texas and/or Houston give up a corporate HQ that easily? They could make it difficult. (Besides, the business environment in Chicago is toxic compared to that of Texas, stupid to HQ in Chicago IMO.) Let me be the first to guess that we’ll be having this discussion for the next several years, and by then who knows where the airline industry will be.

    1. Hey A-

      From a legal perspective, DOJ will most likely approve this. There is very little reason to think that this will raise antitrust concerns. DOJ will probably undergo a lengthy review but nothing about this merger presents the type of antitrust (aka-monopoly concerns) that would have arisen had United merged with Continental.

      As for Houston, it’s a done deal. The merger agreement stipulates that Chicago will be the new home. There may be some room to interpret what “substantial operates” means for Houston, but, at the end of the day, Chicago is the new headquarters.

    2. Could not agree with you more on the Chicago comments. I’m baffled why “United” would want to stay there. I don’t have a ton of business operations experience with Texas (one company I worked for had a lone outpost in Austin, but that hardly counts) but I’ve done battle with the city of Chicago and the State of Illinois for long enough that I will never — ever — commit a single business dollar of any kind to that nightmare of a city/state.

    3. I have very little doubt this will happen. Only the feds can prevent it from happening. The Texas lawmakers can whine all they want, but they can’t stop it unless they get someone in the DOJ to come up with some ridiculous rationale. Labor won’t stop it. They can simply prevent the workgroups from merging, but that didn’t stop US Airways, five years in. And the feds really shouldn’t stop it. I wrote a couple BNET posts on that:

  10. Let’s see, there are two labor groups who were most likely left out of negotiations, and who are from completely different company cultures. There are two fleets — one all Boeing and one that just retired their last 737 in favor of Airbus equipment. And Houston probably won’t easily give up CAL HQ. Senator Hutchison (R-TX) is already raising questions about this merger.

    This merger should continue to make for some interesting reading for the next several months….


  11. Truth be told: United Airlines actually is buying Continental Airlines. While this may be a merger of equals, the transaction is set up with United Airlines being the buyer of Continental Airlines. At the end of the day, United Airlnes shareholders will own 55% of the company whereas Continental Airlines shareholders will own 45% of the combined company.

    While this may not sounds like a big deal, it certainly played a significant role in determining the larger “social issue” questions–airline name, aircraft livery, and headquarters location.

    Two years ago, Continental and United almost merged, but the combined entity would have looked very different. At that point, the proposed merger was structured with Continental Airlines actually buying United Airlines. If that has been the case, I’m sure the airline we would have seen today would have been named “Continental Airlines” with its headquarters in Houston.

    While the media often overlooks how deals are put together, my experience as a New York corporate lawyer is that these issues are hotly litigated behind closed doors. I’m sure that the Continental shareholders would have preferred to have had the new airline called “Continental Airlines” with its headquarters in Houston in exchange for using the United branding.

    As for the management, the deal most certainly dictated who would take over what management position–e.g., COO, CFO, etc. While Continental management is certainly taking over the reins, I’m sure there will be some people being held over from United, such as current CFO, Kathryn Mikells.

    I actually don’t think it is that big of a deal from a United Shareholders perspective that Continental management is taking over. Frankly, Glen Tilton has been in his position for probably seven years too long. The board would have removed him long ago (shareholder grievances and public lack of confidence dictate so) but for one reason: This combined merger would have been much more difficult to complete without Glenn Tilton at the reins. If they had brought in a new CEO, they would have been fighting who was going to run the merged company. It would have been a much more difficult issue to resolve.

    A lot of criticism has been thrown United’s way. Much of it is deserved. The airline management for most of the last decade has been dismal. Service has been lackluster and general employee treatment has been unacceptable. However, I think that if you look at the metrics and the general work that the United team has been doing since the 2008 wake up call you’ll start to see a turn around. They have done a good job in raising performance at United, and, in the end, that was a necessary component to completing this deal this time around.

    1. I wouldn’t read that much into the fact that United is technically acquiring Continental – UA is the larger of the two entities, so it makes sense that their shareholders come out with slightly more of the combined entity. Also, there are certain tax advantages (the details are pretty mind-numbing) to UA being the surviving entity. I believe there may also be issues with the PBGC that are circumvented by UA being the successor corporation, I’ll see if I can find more on that.

      It does seem pretty clear, though, that Continental is in the driver’s seat in terms of management and hopefully this will carry over into corporate culture. It willl be a lot easier for UA’s employees to accept CO management than the other way around.

      I do think moving the corporate HQ to Chicago is a mistake, though…and would point out that CHQs can always be moved again.

  12. I’m convinced that both the “United” and “Continental” names should be retired–as should the logos, ethics and everything else. My first choice for a replacement name and ethic would be Trans World Airlines, which perpetuates the name of a great airline. Some other choices: Independence Airlines, Constellation Airlines (though that might be more appropriate for US Airways), Endeavor Airlines or Intrepid Airlines.

  13. Assumption that may not prove true: “that Continental is in the driver’s seat in terms of management”

    If Mgmt can be defined as “Jeff Smisek”, then yes, CO Mgmt will be in the drivers seat. Otherwise, I only see 1 other CO officer making the jump (Jim Compton), but that’s really a 50-50 shot. Zane will be gone, he’s a Wunderkind but I think Mikells has the star power and rep that investors want, and Mark Moran has only been on the job 5 months.

    Now those are just the officers, the reason I don’t think much of the “Neck-down” CO mgmt will survive the merger is that CO has already stated (in the Employee Q&A they emailed to employees and then filed w/the SEC) there won’t be any significant COLA for the Houston-Chicago move, meaning CO employees will take a 26.7% hit (2009 ACCRA COLI avg) if they are offered a position and choose to move

  14. The we’ll-keep-united-name-but-the-continental-colours decision was surely made by the top guys without consulting anybody in the marketing department at either carrier, which was surely aghast as this is a poor approach to branding. If Pepsi ever bought Coke do you think they’d just write “Coke” in Pepsi lettering on a Pepsi can?

    1. Actually, I’ve been a “marketing guy” my whole professional career, and I think the Cont logo with the United name is excellent and appropriate.

  15. I think it’s wonderful that the airplanes will retain parts of both airlines. This gives all the employees a feeling that they are part of one company since a little of both will still be seen. I think it’s an excellent idea that all airlines that merger should follow, it could make joining two employee groups into one easier since both groups can see they are still a part of the company.

    CLE is a bit close to ORD to still remain down the road as it is today. ORD/EWR/IAD/CLE would be to much and to close together. IAD could take a hit also as EWR is to important in the NYC area to reduce to much.

    But on the sad side, I will be sorry to see another old airline disappear, even if it’s only a name.

    The Feds can’t object to much since UA is big over the Pacific and CO isn’t and CO is much bigger to Latin America then UA is. UA and CO over the Atlantic don’t compete at any U.S. gateway so no one can say they would have a monopoly anywhere. It’s seems a good fit.

  16. You know, I don’t think Smisek brings too much of the old Continental culture with him. I think he’s more of a bean counter harking back to the Lorenzo days. I think the Continental culture of the last 15 years is pretty much dead now, along with the Continental name.

  17. The livery choice is a mistake. The current United paint scheme of sky blue and fluffy cloud white is much more astheticly pleasing – it just projects “flight”. I guess now they can just slap United decals on the CO fleet and then use their un-ending buckets of euro white (CO) and battleship grey (UA) to convert the remaining birds. Cost effective yes….attractive…not so much.

  18. The ugliest livery I have ever seen. The word United in that font looks terrible. Should stick with current UA livery–much more modern and cleaner. At a min. stick with the current UA sans serif type.

    1. Agreed on the logo. United looks ugly in that font. If you want to keep the CO globe (even though it’s generic), at least use the United font with that globe.

      On the CO “look,” there are lots of questions: will the interior of the UA planes switch to the interior look of CO planes (which is much darker)? Will CO roll out UA’s industry-leading gate displays (currently in use at UA hubs)? Will CO use UA’s vastly superior check-in machines (that instantly recognize your destination without having to type it in, followed by the flight time, etc. as the DL and CO machines require)?

      One would hope they’ll go through these one-by-one and pick the best approach (I’m sure there’s some areas where CO beats UA), but I fear that it will be the CO way all-the-way rather than the “best of both worlds.”

      1. Cranky-do you think there is any chance that they will realize the mistake they made and go back to using United’s livery and logo. The new look just looks awful–they took the worst of each airline and put it together.

  19. Consolidation. That seems to be the driving force because of the economy (for good or bad). I worry that this trend will kill off any final thread of innovation in the industry. So in twenty years from now will this continue to the point that it will just leave us with a ‘National Carrier’ ?

    1. Or worse yet, the national carrier of the United States might be facing competition on routes within the United States by foreign-flag carriers. The current legislation prohibiting such business practices might well be repealed or voided by then.

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