Continental and United airlines approved a deal Sunday to merge under United’s name into the world’s largest airline, wire services reported.
For Denver, the deal is probably good for travelers because it brings financial stability for United, the largest carrier at Denver International Airport, and could mean more access to Latin America and Europe through Continental, analysts said.
The merger is valued at $3.2 billion in stock swaps, based on Friday’s closing stock prices, a source with knowledge of the deal told The Associated Press. Airline officials declined to comment, but an official announcement is expected today.
United flight attendant Ken Kyle, president of the Denver-based council for the Association of Flight Attendants union, said the two boards’ votes mark the beginning of what has proved to be a long approval process in other airline mergers.
The deal still needs Justice Department and shareholder approval.
“Certainly no labor groups, flight attendants included, are going to lend our support to a deal unless it respects and protects the rights of its workers,” he said. “It remains to be seen what this combined company is going to look like.”
United, based in Chicago, accounts for nearly half of DIA’s passenger traffic.
Continental, based in Houston, has about 2 percent of DIA’s market share.
Airline analyst Robert Herbst, founder of the industry website AirlineFinancials , said the merger could be good news for Denver travelers. United’s presence could attract more Continental flights to DIA, including more routes to Latin America and Europe, he said.
Nationally, however, fewer carriers means less competition and higher prices, he said.
“But prices are going to go up no matter what happens,” Herbst said. “They have to. Prices haven’t really increased in 25 years, and for the industry to survive, ticket prices have to increase.”
Mac Clouse, a University of Denver finance professor who follows the airline industry, said the merger brings long- term stability to Denver’s air- travel market.
“This is good for Denver because it’s good for United and Continental,” he said. “United has a large presence here, and it would be troubling to see them go.”
Strength in numbers
Domestically, United is a giant west of the Mississippi, including its secondary hub in Denver, and Continental dominates east of the Mississippi.
The combined airline would own 53 percent of West Coast air traffic and 40 percent of passenger travel on the East Coast.
A United-Continental merger was expected in April 2008 but fell through at the last minute when Continental backed out, saying the deal wasn’t in the company’s best interest.
The Houston Chronicle reported Sunday that under the latest proposal, United shareholders would own 55 percent of the merged company.
United is the third-largest U.S. airline, and Continental is fourth. Combined, they would surpass Delta Air Lines. Delta supplanted American Airlines as the largest U.S. carrier after an all-stock purchase of Northwest Airlines in October 2008.
Citing anonymous sources close to the deal, AP said Sunday that the two airlines would combine under the United name and be based in Chicago.
Continental’s Jeffery Smisek will be chief executive of the merged company, and United CEO Glenn Tilton will become chairman.
Both airlines lost money last year. Continental reported a loss of $282 million when revenue fell 17.4 percent to $12.59 billion last year, according to AP.
United lost $651 million, as revenue tumbled 19.1 percent to $16.34 billion in 2009.
United filed for Chapter 11 federal bankruptcy protection in December 2002, the largest bankruptcy filing by an airline. The company emerged from bankruptcy in February 2006.
Waiting for details
Kyle, the Denver-based union leader, said he hoped the deal would bring new life to a stalled contract dispute with United. Last month, about 100 United flight attendants picketed at DIA, joining 14 protests worldwide in the contract dispute.
Flight attendants maintain that despite a year of negotiations, United has failed to address pay, benefits, work rules and pension improvements.
Primarily, flight attendants want cuts restored as promised during United’s bankruptcy. The union has said it is prepared to strike if an agreement cannot be reached.
Kyle said he was “optimistic” but skeptical until he sees what is proposed by the two airlines.
“The ones who most benefit from these airline mergers in the past have been the executives,” he said, “and you can put a period after that sentence.”
Staff writer Ann Schrader contributed to this report.
Joey Bunch: 303-954-1174 or jbunch@denverpost.com
