By Julie Johnsson | United and Continental Airlines are expected to announce Monday that
they are combining operations to create the world’s largest airline,
the culmination of more than a decade’s effort by Chicago-based United
to strike a megamerger that would transform the U.S. airline industry.
The transaction, which must still be approved by both airlines’ boards,
would be structured as a merger of equals, with neither side paying a
premium for the other’s stock, according to sources close to the talks.
The new airline, to be called United and based in Chicago, sources
said, would bring together two carriers whose hubs and routes
complement each other, giving management a shot at running a more
profitable business in an industry plagued by overcapacity.
United’s board is expected to vote Friday on the deal, which was reached in a flurry of negotiations that lasted less than three weeks. Continental directors are meeting Friday to pore over the proposed transaction and are scheduled to vote Sunday. Representatives for Continental and United declined to comment on the merger.
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The airlines stood in nearly the same position two years ago, with an apparent deal in hand, sources said.
But in a vote that shocked United’s executives, Continental directors called off the merger on the eve of its announcement, deciding their carrier would fare better independently. They were spooked by operations problems at United, its labor discord and unexpected poor quarterly financial reports, sources told the Tribune.
Two years later, United has remade itself, earlier this week posting the best first-quarter results in a decade and besting its peers. And Continental has a new CEO, Jeff Smisek, 55, who decided his carrier couldn’t be left on the sidelines after news leaked earlier this month that United was deep into merger talks with US Airways.
The proposed merger is the first major strategic initiative undertaken by Smisek, who took over as chief executive of the Houston-based carrier at the start of the year and is well-regarded within airline circles. Combining Continental and United would create a global powerhouse, with a network reaching deep into Asia, Latin America, Europe and the Middle East.
Continental entered talks with United on the condition that Smisek head the combined entity, sources said. United CEO Glenn Tilton, 62, has agreed to become nonexecutive chairman of the new airline and to serve on its board through a two-year transition period. The rest of the management team will be named later by Smisek.
Although United is far larger than Continental, Smisek and other Continental executives hope their carrier’s culture of fostering good relations with customers and employees will prevail, sources said.
That could prove a challenge, observers said. United’s reputation was badly battered during its three-year bankruptcy last decade that also damaged the morale of employees, who took steep pay cuts and gave up pensions to ensure the carrier’s survival.
But over the past two years, United has placed greater emphasis on pleasing customers. Its planes are cleaner, many are outfitted with new interiors, and it routinely posts the best on-time performance among its network airline peers.
Continental sets the bar for service among large domestic carriers, receiving the highest marks from passengers in Zagat’s 2009 Airline Survey, by a wide margin.
The Continental and United brands will likely remain in the market until the carrier receives a single operating certificate from the FAA, a process that took the recently merged Delta and Northwest Airlines two years to accomplish. Over that time, Smisek and his team plan to work hard at making sure there is a uniform level of service at the new United, a source said.
But some are questioning why Smisek “wants the hassle, why does he want to take the risk?” said aviation consultant Robert Mann. “The economic valuation of doing it must so greatly exceed the value of not doing it that even when you discount it for all the things that do go wrong, and may possibly go wrong, it still represents the best course of action.”
After years of heavy losses and relentless cost-cutting, airline executives are increasingly looking to industry consolidation as a way to further reduce expenses while eliminating some of the excess capacity that keeps pricing so low that most carriers struggle to break even, analysts said.
United and Continental could cut costs and boost revenues by between $1.8 billion and $2.2 billion by formally combining their networks and finances, estimated Vaughn Cordle, an airline analyst and retired United pilot.
Glenn Tilton – may he live 1000 years! He should be congratulated on brokering this deal. He saved United and with his vision and guidance and will bring the airline to the forefront of excellence. Three cheers!!
I don’t understand why they would even keep the United name. It’s damaged big time. Continental has improved itself over the last 15 years. Plus why keep the headquarters in Chicago? Houston likely is cheaper to live in.
Ummm… No, lets keep the Headquarters in Chicago.. that way we can keep the 1000s of jobs that come with it. Besides.. Our lovely Mayor has given them a lot of tax breaks to make staying in Chicago cheaper than Houston!
Have they done any marketing studies?? United’s image is far inferior to Continental’s. Keep the Continental name and let the marketing machine + Continental management soar past competitors!
What do you get when you combine two lousy airlines?
Thousands of layoffs & America’s Worst Airline!
I like United. The real inferior airline of all the big ones is American. Their service & quality has plummeted in recent years. I fly several times a year, and whenever I fly American lately, the seats are always dirty, crumbs in it, trash still in the pocket, sticky residue on the trays. It’s disgusting. At least United tries to maintain a modicum level of cleanliness. American has given up altogether!!
i DONT CARE ABOUT THE MERGER. WILL THE LITTLE PEOPLE STILL HAVE JOBS IN BOTH HOUSTON AND CHICAGO. I SEE TAX BREAKS AND BONUS WHAT ABOUT THE PEOPLE WHO REALLY MAKE IT HAPPEN . tHE AGENTS THE FRONT LINE STAFF…. BTW KEEP THE NAME CONTINENTAL …..
Makes sense to keep the headquarters in Chicago as its: 1) a larger market; 2) the site of the largest hub for the combined airline; 3) faster flight times to DC, NY and Europe (one of the reasons that Boeing relocated to Chicago); 4) the site of many incentives that United has already received. That said, my guess is that Houston will still retain plenty of jobs.
As far as the name is concerned, I think that Continental is more respected domestically, but United is more recognized globally. I’ve flown both airlines in recent years and I’d certainly have to say that Continental has the slight edge on service, but if one aim is to apply that model to United, then it could be a successful merger. You’d have a single airline with coverage over the country’s most prominent hubs and practically all of the prime international routes covered.
For what it’s worth, my least favorite airline is American. Ugh.
True, United’s image & brand-name has taken a hit while Continental certainly has gone through their fair-share of troubles. However, United’s name is known been known internationally for years & its also emerging from the ashes to become a fantastic, global airline once again. They’re doing very well financially, cutting costs, working hard &, their on-time performance has been phenemonal. Continental even knows what sacrifice is like – their employees have gone through a few bankruptices, too, &, have had their paycuts. Once they get things ironed out after a complicated merger, this will be a great airline as their route systems, combined don’t really overlap.
I’m glad that they want to leave the headquarters in Chicago – for decades this has been our country’s transportation hub – and will be even after we’re all long gone. Access to the -world- from Chicago is also second to none. We’re extremely fortunate to be able to hop on just 1 flight & be able to land in any city in Europe, South America or Asia. While Houston might be cheaper to live in, Chicago IS where it happens as this truly is the best city to live in North America – in the summer, of course.
Continental has been such a formidable airline competitor over the years. It’s going to be really hard for this new United to compete with a name that’s been dragged through the mud over the years. Delta and Northwest have successfully merged now and truly kept the best of both worlds. It’ll be interesting to see if the new United can do the same.
In any case, United is settling here. They tried to merge with Delta, but their own greediness and ridiculous demands led to the deal falling apart.
How about the first order of business for the customers being getting rid of the ridiculous baggage fees that were instituted during a “gas crisis” that doesn’t exist anymore…that will do wonders for the reputation!
Continental will remain a force in Houston. Not too concerned about corporate location. Exxon’s corporate is in Dallas but far more employees in Houston. Southwest Airlines will gladly fill any void if they raise their rates. PS I would rather live in Houston from November to May and then live in Chicago from June to September.
….and we would rather live year ’round in Chicago than any one month (your choice) in Houston.
Chicago at its worst is exponentially better than Houston at its finest……
I have a relative that has been through the rough times with UAL, lost his pension and any company stock through the ESOP. Why they stay? Only God knows.
Chicago is the larger market now, but have you seen how fast Houston is growing. Dallas and Houston are on pace to pass Chicago in a matter of 20 years. The taxes are cheaper, there is not idiot mayor, it’s a short drive to the gulf,and the weather is nice 10 months of the year. Chicago is a beautiful city, don’t get me wrong, but some of you people need to get out of your Chicago bubble. There are plenty of great places to live that aren’t Chicago. All those millions of people moving to Houston and Dallas can’t be wrong.
keeping the United name apparently has been the plan even when they discussed this a few years ago, There are international routes that would have to be reopened for bidding if they changed the name to Continental. It makes no sense in the grand scheme of things, but int’l routes are very valuable, and while anyone can fly to Heathrow, I think that places like Singapore, HongKong etc., are very linited.
Why are people hung up over the name? Names and reputations change. United is the perfect name because the two airlines are united, hence United’s name in the first place. I believe that Continental was once “People’s Express”, the airline run like a bus company. Nothing but poor people with goats and chickens riding on their laps. With Continental’s business model, the airline will improve it’s reputation. And let’s not forget, which airline had the best “on time” record for the last year and a half….United. This merger will create a good airline.
I could care less about the name, I care about my job. I work for United and have been moved to part time in March. Now I’m worried because of this merger I will no longer have a job…….
Richard like you I am worried. I was furloughed in 2008 Does this mean we get our jobs back? I think not. I just hope those that have their jobs get to keep them.
I believe the UAL employees will embrace Smisek & his executive team with open arms and help make the new entity a success. They absolutely loathe and despise Tilton and his team for his weekly “Shared Sacrifice” mantra during BK proceedings while gutting pensions/benefits and demanding up to 40% pay cuts (after trickle down seniority losses). His team’s subsequent egregious attempt to extract themselves a 15% share in the post-BK company was quickly cut to 5% by the BK judge – seen by many observers as a rebuke. Is it any wonder that the employees felt their management team was dishonest, self-centered and that THEIR sacrifices simply amounted to moving millions of $$$ from their pockets into the (already) fat wallets of the executives?
Trust me, the departure of Tilton will seem like a breath of fresh air after he was widely reported to have said “Morale is not my problem”.
You’re joking, right?
Glenn?…are you there? Are *YOU* writing this from your palace on Wacker Drive in the wee hours bereft of meaningful friends and conversation?
I work at CO and United stinks. We loved our airline until all this started happening. NO UNITED!
You do not think we do not care about our jobs in Houston? This all stinks. Your airline stinks.
Continental was not and never was People’s Express. People’s Express came under the Continental umbrella. They upgraded their standards and service to fit with Continental’s. As such, United will have to do the same.
I am a sometimes reluctant customer of both airlines (250K) a year and I look on with this with utter dread. Another smaller well run airline will ineviatbly be destroyed by this merger and all we will be united in is having to endure subtandard. United may have improved but they are still crap.
ABC = Anything But Chicago, the mantra of the serious business traveller
Being someone who lives in Houston and has been a long time customer of Continental, I’m OK with the merger and even with the HQ “being” Chicago.
My hope is that part of the agreement to merge consists of protections for the Continental jobs in Houston. It’s not just the executives for Continental, but the thousands of people working at Continental Center I in Downtown Houston who have helped create and maintain the Continental brand on the corporate side along with the workers at the IAH, EWR and CLE (and GUM) hubs.
My inclination is that most jobs will be saved for the meantime as both companies will be operating separately for a while as shown by the Delta/Northwest merger. Also, in this era of job losses, recession and bailouts, I don’t think the new airline would like to take the PR hit of cutting a ton of jobs. Hopefully, United will find away to trim enough costs in other spots while keeping people employed and become a contributing factor in our country’s economic recovery.
well if I was Continental, I wouldn’t do this deal having a hub at EWR and Bush is working pretty good I think and who would in their right minds want to fly through chicago, you always hear about delays be it midway or o’hare. I never have been to chicago and bet it’s a nice city but the airports, rather take my chances with EWR (Jersey) or Bush (Houston). I am wondering about miles people have gotten be it on Continental or united though. I remember being told miles don’t expire but with a merger, I just wonder what will happen. On the names, I don’t think anyone will change names just because Delta/Northwest seems to have more Delta named planes these days doesn’t mean Northwest is excluded. I never have flown united but heard bad things about them and Continental has always done well especially with vouchers in things happen unlike southwest.
The CAL HQ jobs will be somewhat safe for most of the first 2 years then the inevitable “right-sizing” will begin. Actually they may not have to furlough that many in the end. The overwhelming sentiment there is they would be more likely to accept job relocation to Libya than Chicago. Once the clock starts ticking, the mass exodus will begin very rapidly it appears. Many already have their resumes out. The real problem for the “New United” may be getting the necessary expertise and technical assistance in the integration phase out of a Cal HQ that starts to resemble their neighbor Enron in it’s dying days.
I find it funny that everyone is snagged up in a name. The new airline will really have no ties to United anymore other than Chicago and the name. Continental’s CEO is coming to run the airline and United’s service will change to be like continental’s. United’s employees HATE Tilton. HATE him. As long as he’s gone, the employees of United will welcome with open arms Smisek and his board. United has some cranky flight attendants, but its because they hate tilton. There are some of the most seasoned, professional, kind, caring people out there. The new United will be unstoppable. People crack me up with their ideas that its going to be bad because United is bad. I don’t call 4 billion in cash reserves, #1 on time performance, and the world’s most lucrative routes bad! I call that a good airline!!
My bro works for UAL in Sacramento and he was downgraded to part-time status roughly 2 years ago. Less flights to Sacramento…cleaning crew was outsourced…he’s afraid this is the end of his job.
plz dont give up co name 75 yrs lets do another 75yrs
I hope United-Continental do not leave my city and region of Cleveland, Ohio. Cleveland has spent a lot of money on Cleveland Hopkins International Airport(CLE) in the past 20 years and fought for 12 years to have transatlantic flights to London. In 1999 Cleveland had its first flight to London and in 2008 had a flight to Paris. I wish these two flights were restored because Cleveland has a World Class hospital, the Cleveland Clinic, a World Class Orchestra, and has the Rock and Roll of Fame. If United and Continential would expand European flight service out of Cleveland it could help relieve both Newark(EWR) and O’Hare(ORD).
I was reading the internet that people in NYC do not want another airport and in Chicago, the suburbs that surround O’Hare have had enough.
Continental has a good relationship with Cleveland organizations and had offered airline tickets and vacations for charities. Continental has sponsored Cleveland’s sports teams, put ads on buses and employs 3,200 people in Cleveland.
Employees of United Airlines are worried about still having a job after the merger is announced, the same for employees of Continental Airlines. Smisek and Tilton have secured their positions….ahhh to be in corporate management.
United Will always be number one. This is the worst merge i have ever heard any airlines do. Continental? Are you kidding me. Thats not even a airline, it’s worst name out their. Long live United Airlines and their employees. Not Continental!!! Shitty Airline Continental. United Rocks. Best Employees. Best service.
“Chicago is the larger market now, but have you seen how fast Houston is growing. Dallas and Houston are on pace to pass Chicago in a matter of 20 years. The taxes are cheaper, there is not idiot mayor, it’s a short drive to the gulf,and the weather is nice 10 months of the year. Chicago is a beautiful city, don’t get me wrong, but some of you people need to get out of your Chicago bubble. There are plenty of great places to live that aren’t Chicago. All those millions of people moving to Houston and Dallas can’t be wrong.”
The only way Houston and, especiallY Dallas, will surpass Chicago’s population is 20 years, is if they comtinue to grow at their current rate for the next 20 years and Chicago stays steady or decline for 20 stright years. It’s not gonna happen but people will keep dreaming. Every city in Texas is doing well because Bush hooked his state up but Bush is no longer in office and soon enough the huge Texan growth will slow or come to an end.
Btw, not only is Chicago the larger market but it’s also the most important market. Houston being cheaper doesn’t mean much either. Chicago might be more expensive but has far more and better amenities. As one of the spokesperson, in other article said, the new company would rather have their headquarters located in a major financial center.
P.S. To all the Houston residents that come on this board and whine about Chicago can just stfu because it doesn’t matter. The continental employees crying about the possibility of having to move to Chicago should be praying they still have a job and if they’re not happy then they should find a new job.
Ron, have you checked the early census results? Houston already surpassed Chicago.
It’s not surprising given how expensive and unsafe Chicago is.
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