Airlines Merger Paper

Topics: Continental Airlines, Airline, United Airlines Pages: 12 (4097 words) Published: May 4, 2013
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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...

References: About our new logo: United 's evolving brand. (2011). Retrieved from http:// www.united.com/page/genericpage/1,,53707,00.html? navSource=header&linkTitle=our_new_logo Barrett, P. M. (2010, May 6). Airline mergers aren 't storybook romances. Bloomberg Business Week, Retrieved from http://www.businessweek.com/magazine/content/ 10_20/b4178007849046.htm Block, S. B., Hirt, G. A., & Danielsen, B. R. (2009). Foundations of financial management. (13th ed., pp. 612-624). New York, NY: McGraw-Hill Irwin. Grant, A. (2010, August 20). Consumers will see effects of Continental-United merger in the spring. Cleveland, Retrieved from http://www.cleveland.com/business/index.ssf/ 2010/08/consumers_will_see_effects_of_continentalunited_merger_in_the_spring.html
16 Lawrence, H. (2003). Premiums in stock-for-stock mergers and some consequences in the law of director fiduciary duties. University of Pennsylvania Law Review, 152(881), 884. Retrieved from http://www.law.upenn.edu/journals/lrev/Issues/152 IATA Fact sheet: Industry statistics. (2011, September). Retrieved from http:// www.iata.org/pressroom/facts_figures/fact_sheets/Documents/Industry-FactsSept2011.pdf Keith, K. (2011, November 8). United continental set for growth despite merger difficulties. Medill Reports Chicago, Retrieved from http:// news.medill.northwestern.edu/chicago/news.aspx?id=194449 Maxon, T. (2010, May 3). Smisek tells Continental employees about the United merger. The Dallas Morning News, Retrieved from http://aviationblog.dallasnews.com/ archives/2010/05/smisek-tells-continental-emplo.html Merger frequently asked questions. (2011). Retrieved from http://www.united.com/page/ genericpage/1,,53607,00.html Mouawad, J., & Merced, M. J. (2010, May 2). United and Continental said to agree to merge. . Retrieved from http://www.nytimes.com/2010/05/03/business/ 03merger.html?ref=unitedairlines Mouawad, J. (2010, August 27). United-Continental merger clears federal hurdle. . Retrieved from http://www.nytimes.com/2010/08/28/business/28air.html News release: United and Continental close merger. (2010, October 1). Retrieved from http://www.united.com/page/genericpage/1,,53628,00.html RITA: Bureau of Transportation Statistics. (2010-2011). Retrieved from http:// www.transtats.bts.gov/ SEC filings: Continental airlines 10K. (2010a, July 23). Retrieved from http:// ir.unitedcontinentalholdings.com/phoenix.zhtml?c=83680&p=irolSECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2R vY3VtZW50L3YxLzAwMDAzMTk2ODctMTAtMDAwMDUzL3htbA== SEC filings: Continental airlines 10K. (2010b, February 17). Retrieved from http:// ir.unitedcontinentalholdings.com/phoenix.zhtml?c=83680&p=irolSECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2R vY3VtZW50L3YxLzAwMDAzMTk2ODctMTAtMDAwMDExL3htbC9zdWJkb2N 1bWVudC8xL3BhZ2UvMzM%3d SEC filings: United airlines 10K. (2010, February 26). Retrieved from http:// ir.unitedcontinentalholdings.com/phoenix.zhtml?c=83680&p=irolSECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2R
17 vY3VtZW50L3YxLzAwMDExOTMxMjUtMTAtMDQxNTIzL3htbC9zdWJkb2N1 bWVudC8xL3BhZ2UvMzg%3d Seetharaman, D. & Peterson, K. (2010, May 3). UAL, Continental to form largest airline. Reuters, Retrieved from http://www.reuters.com/article/2010/05/03/us-unitedidUSTRE64136420100503 Talty, J. (2011, September 27). Pilots question United Continental merger issues in Wall Street protest. International Business Times, Retrieved from http:// www.ibtimes.com/articles/220833/20110927/united-continental-merger-pilots-wallstreet-protest.htm UAL company financial information. (1999-2011). Retrieved from http:// www.advfn.com/p.php? pid=financials&btn=annual_reports&mode=&symbol=NYSE:UAL United Continental Holdings. (2010). Retrieved from http:// www.unitedcontinentalholdings.com/ United Continental Holdings Inc. announces second-quarter 2011 profit. (2011, July 21). Retrieved from http://ir.unitedcontinentalholdings.com/phoenix.zhtml? c=83680&p=irol-newsArticle&id=1587525 Yahoo finance. (2011). Retrieved from http://finance.yahoo.com/q/bc? s=UAL&t=2y&l=on&z=l&q=l&c Yahoo finance: Industry center - major airlines. (2011). Retrieved from http:// biz.yahoo.com/ic/ll/770per.html
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