Airlines Merger Paper

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United Airlines And Continental Airlines Merger

08 November 2011

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Introduction “The World’s Leading Airline,” reads the slogan for the new United and Continental joint airline, as they celebrate the closing of their recent merger. The two successful companies have bonded together to create a competitive advantage in the combative global aviation industry and are looking towards a bright future. As the new non-executive chairman of the board, Glenn Tilton, states, “This [merger] sets us on a path to create the world’s leading airline from a position of strength, with one of the industry’s best cash positions, industry-leading revenues and a competitive cost structure” (“News release: United,” 2010). This ‘merger of equals’ integrates the two airlines as a single airline, bringing together the best of each carrier. The companies are effectively working towards improving customer service, creating career opportunities for society, and providing constant returns to their shareholders. Description of the firms and the industry The two American airlines, which are members of the Star Alliance, combine their operating brands, United Express, Continental Express, and Continental Connection to operate around 5,800 flights a day in over 370 global destinations. They have hubs in major cities including, Chicago, Los Angeles, New York, San Francisco, Tokyo, and others, with headquarters in Chicago, Illinois. The holding company for the two airlines is called United Continental Holdings, Inc. and it is listed on the stock exchange under the ticker symbol UAL (“United Continental Holdings,” 2010). The newly created worldclass global airline combines United’s name with Continental’s logo, the globe, which

3 “symbolizes [their] combined worldwide network spanning six continents” (“About our new logo,” 2011). By effectively integrating forces to create a world-leading airline, the two companies have certainly maintained brand equity and retained the loyalty of their consumers. Another strong point for the two companies is the not-purely centralized structure of the industry that commits to their employees. The companies are run with tight control, while still leaving room for creativity. Chief executive officer Jeff Smisek explains, “Our outstanding team is the most important asset of the new airline. We will be working together to provide our co-workers with the right culture, tools and incentives to do their jobs well and to make them proud to work for the new United” (“News release: United,” 2010). The firms value profitability and satisfaction over absolute control and authority. The Merger The 3 billion dollar merger, which was officially announced on May 3, 2010 with United Airlines buying Continental, would “form a coast-to-coast behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe” (Mouawad & Merced, 2010). The merger was officially closed on October 1, 2010, and as a result, Continental shareholders will own 45% of the equity of the holding company, while United shareholders will own 55% (“News release: United,” 2010). The merger is directed towards horizontal integration because it involves the acquisition of competitors. This means that the two airlines are combining efforts to decrease competition and generate higher revenues. As reporter Jad Mouawad states, “Together,

4 the airlines will have 21 percent of domestic capacity, in terms of available seat miles, or one seat flown one mile, exceeding the 20 percent held by Delta, the current market leader” (Mouawad, 2010). Thus, this competitive advantage is very significant in the merger’s overall outcome, because the airlines can fight off domestic rivals and compete abroad more effectively. Nonetheless, the merger is a friendly, all-stock merger of equals, allowing both companies to implement their best strategies and ideas to ultimately...
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