United and Continental have merged. So what?

It’s official.  The merger of United and Continental airlines was legally finalized today.  For the time being, United and Continental will operate as two separate entitites owned by the same company but, over the course of the next year, the two will combine their operations to create the world’s largest airline.

United and Continental have merged. So what?

Photo courtesy of thebat-sf.com

So what does this mean for you?

Most likely, absolutely nothing.

I know that’s not the conventional thinking.  If you ask United or Continental, they’ll say this is huge news and spectacular for flyers.  The new United will “offer customers an enhanced travel experience, combining the best products and services each carrier has to offer.”  They will tout the global route network of the combined airline, all the destinations made possible by the combined frequent flyer programs, etc. etc.  Meanwhile, there are plenty of others who will agree that this is a really big deal, only with a decidely more negative tone.   Do a Google search and you’ll find pundits making apocalyptic claims that this will be the beginning of the end of air travel as we know it.  At the very least, fares will be higher and flights will be fewer.

The truth is, unless you’re an employee of United or Continental, or an investor, you probably aren’t going to be affected at all.  Yes, if you’re a frequent flyer on one of these airlines you might get some (very small) marginal benefits, but most of those you’ve already been getting anyway because United and Continental are both members of the Star Alliance.  And, yes, any time you reduce the number of competitors in an industry there is a legitimate risk that prices will rise.  But even with one less airline — in fact, even with two less airlines if American now feels compelled to try to gobble up US Airways as has been rumored — the U.S. airline industry is still hyper-competitve.  Need proof?  In what other industry, when one competitor has a sale, do all the other competitors match those sale prices to the penny, within hours, virtually every time?

In fact, it is precisely because the airline industry is so competitive that so many airlines come and go and end up having to be acquired.  When the company that eventually became CheapAir.com was formed in 1989, venerable airlines like Pan Am, TWA, and Eastern were major players.  But they had become old, fat, and inefficient and eventually they all went away, victims of the competition.  United, American, and Delta were leaner and better back then; the others couldn’t compete.  But as they, too, became static and bloated and expensive, upstarts like Southwest, JetBlue, AirTran, and America West Airlines (now part of US Airways) began to grow by undercutting the majors’ prices.  They forced fares back downward.  Now, United, American, and Delta are at various stages of the re-invention cycle and who knows which will succeed.  If they falter, additional new players like Virgin America, Allegiant, or Spirit are waiting in the wings, more than ready to pick up the slack.

Americans have come to expect relatively cheap air fares and, at least by historical standards, they have been getting those for a number of years.  That isn’t going to change.   Since the government deregulated the industry in 1978, there has never been a shortage of startup airlines attempting to feed our low-fare appetite.   It’s a hard business, and many have failed.  But if today’s industry leaders think they can swallow up the competition and then jack up their fares, they will give a new generation of airlines just the opening that they need to rise, step in, and steal a customer base.  If it comes to that, today’s largest airlines may end up tomorrow’s TWA or Pan Am.

2 Comments

  1. I’ve already noticed a difference. I was just about to book a Round Trip flight from Denver to Amsterdam and when I went back to verify the times and prices once more, the cost was raised by $150, and United was now listed as the new Flight operator instead of Continental..

  2. This was an excellent article.

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