Continental & United Merger

[citykid09]

Continental & United Merger

Will Houston lose the headquarters?

Continental Airlines is in serious merger discussions with United Airlines, picking up from talks that were suspended two years ago at the direction of the Houston-based carrier's board, said people with direct knowledge of the talks.

United is expected to insist on keeping its headquarters in downtown Chicago, where it is building a new operations center with $35.8 million in city assistance.

http://articles.chicagotribune.com/2010-04-15/business/ct-biz-0416-united-continental--20100415_1_united-airlines-pilots-and-flight-attendants-wendy-morse

http://www.chron.com/disp/story.mpl/business/6960431.html

Edited April 16, 2010 by citykid09

[AtticaFlinch]

Continental & United Merger

Will Houston lose the headquarters?

http://articles.chic...nts-wendy-morse

http://www.chron.com...ss/6960431.html

Looks like our airlines are positioning themselves to become too big to fail. It's a shrewd business move. Rather than develop a quality product or be the best in service in your industry, just keep merging like a corporate Voltron till you're the only game left in town. Then, you don't have to make any actual money as the Federal government will bail you out once it's become obvious the business model is a bad one.

*Sigh*

Where's Teddy Roosevelt when you need him?

[barracuda]

It sounds like the Continental management team would likely run the company after the merger.

Industry observers generally believe that Continental CEO Jeff Smisek would head up the new carrier.

Looks like our airlines are positioning themselves to become too big to fail. It's a shrewd business move. Rather than develop a quality product or be the best in service in your industry, just keep merging like a corporate Voltron till you're the only game left in town. Then, you don't have to make any actual money as the Federal government will bail you out once it's become obvious the business model is a bad one.

*Sigh*

Where's Teddy Roosevelt when you need him?

I doubt that will change as long as airlines are competing on cost...

[AtticaFlinch]

I doubt that will change as long as airlines are competing on cost...

Then it sounds to me like they need to do a better job of selling their features. They've either allowed (or made) the consumer to be unconcerned about anything but getting around cheaply, regardless of safety or comfort concerns, and their profits are hurting because of it. It's a world they and their marketers built, and they shouldn't be shocked the consumers responded. It's the Walmartization of the entire world. Pretty soon the only goods and services available will be cheap but utter pieces of crap.

Every airline should fire their entire marketing team and start over from scratch, and every consumer should reevaluate what actually matters.

[Trae]

With Continental's management probably running the new company, I can see them staying in Houston.

[Hartmann]

I think the articles use "serious" a little too easily. Continental had to jump back into the talks due to United and US Airways discussing a merger. Continental knows that if such a transaction were to take place American and themselves would come out the smaller carriers in the market, and the DoJ would never let them merge. So, Continental has put some skin in the game and wants to see what United will do.

Continental and United have been in talks before and during those talks, it was common knowledge that the Continental brand would be the one to survive with the HQ staying in Houston. I wouldn't be surprised if what is on the table now is the same thing.

[ToryGattis]

I'm really hoping this doesn't happen. But if it does, the Houston HQ would be at risk. On the plus side, clearly you want the CO management and culture to dominate, and that argues for Houston. But there's also value in being the "hometown" airline of Chicago vs. AA. And Chicago has recognized the risk for years, and has locked both the UA HQ and ops center into sweet leases and incentives that all blow up if they go away.

I heard from an insider that the last set of UA-CO merger discussions had the HQ in Chicago. Sigh.

I think the best we might hope for is a "figurehead" HQ in Chicago of top execs and the ops

WSJ on CO-UA:

WSJ on CO-UA:

http://www.emailthis.clickability.co...kMap=viewThis&etMailToID=670344333

"UAL Corp. appears to be angling to have it all in renewed airline merger discussions: It wants to cut a deal to combine with US Airways Group Inc. while retaining its lucrative marketing alliances with rival Continental Airlines Inc."

...

"The combined cost and revenue synergies of a US Airways merger offer more than a Continental-United merger, said another person familiar with the situation, because two-thirds of the revenue benefits already are captured by the United-Continental alliance. And for shareholders of UAL and US Airways, the gains from revenue and cost-savings would be spread over a smaller combined equity base, providing a larger return, knowledgeable people said."

Great news! This points out what I've been wondering all along: everybody talks about the importance of cost cuts from consolidation, but then point out that CO-UA have very little overlap, i.e. little to cut. Whereas there is plenty to cut in UA-US. And having 3 pilot groups fighting in UA-US could be genius - because game theory says they have a lot more incentive to cooperate and avoid having 2 other groups pile up on one. Deadlock is a lot harder with 3 players than 2.

Another point: people say CO will be stuck as a "weak #4", but Alaska gets by just fine smaller than others, and I think their EWR position will always have high value, regardless of what the Big 3 do.

[Trae]

So two consecutive posts saying two different things. Will the HQ be in Houston or Chicago? Looks to be run by the Continental management either way, which probably helps out Houston more.

[Hartmann]

I'm really hoping this doesn't happen. But if it does, the Houston HQ would be at risk. On the plus side, clearly you want the CO management and culture to dominate, and that argues for Houston. But there's also value in being the "hometown" airline of Chicago vs. AA. And Chicago has recognized the risk for years, and has locked both the UA HQ and ops center into sweet leases and incentives that all blow up if they go away.

I heard from an insider that the last set of UA-CO merger discussions had the HQ in Chicago. Sigh.

I think the best we might hope for is a "figurehead" HQ in Chicago of top execs and the ops

WSJ on CO-UA:

WSJ on CO-UA:

http://www.emailthis...lToID=670344333

"UAL Corp. appears to be angling to have it all in renewed airline merger discussions: It wants to cut a deal to combine with US Airways Group Inc. while retaining its lucrative marketing alliances with rival Continental Airlines Inc."

...

"The combined cost and revenue synergies of a US Airways merger offer more than a Continental-United merger, said another person familiar with the situation, because two-thirds of the revenue benefits already are captured by the United-Continental alliance. And for shareholders of UAL and US Airways, the gains from revenue and cost-savings would be spread over a smaller combined equity base, providing a larger return, knowledgeable people said."

Great news! This points out what I've been wondering all along: everybody talks about the importance of cost cuts from consolidation, but then point out that CO-UA have very little overlap, i.e. little to cut. Whereas there is plenty to cut in UA-US. And having 3 pilot groups fighting in UA-US could be genius - because game theory says they have a lot more incentive to cooperate and avoid having 2 other groups pile up on one. Deadlock is a lot harder with 3 players than 2.

Another point: people say CO will be stuck as a "weak #4", but Alaska gets by just fine smaller than others, and I think their EWR position will always have high value, regardless of what the Big 3 do.

The biggest issue is going to be labor and was part of the reason the last merger discussions ended without UA and CO joining in holy airline matrimony.

Another big issue is fleet continuity. Continental has prided itself on a consistent fleet. It helps keep costs down and makes irregular operations due to broken planes easier to recover from. United's fleet is a mish-mash of different airplane makers and differences within the fleet (the United p.s. fleet).

If a merger was to happen, Cleveland would be dropped as a hub, that's a definite. The west coast would be another case study in interestingness, due to United's presence at SFO, yet Continental's maintenance operations at LAX. While I think O'Hare would stay as a hub, I'm not sure how much it would be used for international destinations, as the majority of United's international traffic originates in SFO and IAD.

[citykid09]

No matter what happens, if Houston does not retain the headquarters it won't be good for the city. Look at what happened when Compaq left, HP promised it would remain a big presence in the city, but it didn't. Instead of adding jobs many where eliminated or moved to California.

[ToryGattis]

To clarify, I'm hoping the WSJ reporting is right: UA wants to merge with US Air to create cost synergies (with HQ in Chicago), and just deepen the partnership with Continental, keeping it separate with the HQ here. That would be best. It's also best for IAH, I think, because CO will use new planes to create new routes from Newark and IAH. If they merge, IAH service to Europe and Asia will stagnate, as CO-UA will route all those people through the east or west coast hubs. We might lose domestic service too as more traffic is routed through Denver or Chicago. We will still be a strong Latin America hub, but I don't think it will grow anymore than it already has with the Star Alliance partnership.

[TheNiche]

Then it sounds to me like they need to do a better job of selling their features. They've either allowed (or made) the consumer to be unconcerned about anything but getting around cheaply, regardless of safety or comfort concerns, and their profits are hurting because of it. It's a world they and their marketers built, and they shouldn't be shocked the consumers responded. It's the Walmartization of the entire world. Pretty soon the only goods and services available will be cheap but utter pieces of crap.

Every airline should fire their entire marketing team and start over from scratch, and every consumer should reevaluate what actually matters.

So...you're saying that consumers suck because they don't know that they should pay more, and airline marketing staffs suck because they aren't willing to engage in hardball up-selling. You would have the American consumer piss away their savings on honey roasted peanuts. ...yeah, that'll fix our economy.

[AtticaFlinch]

So...you're saying that consumers suck because they don't know that they should pay more, and airline marketing staffs suck because they aren't willing to engage in hardball up-selling. You would have the American consumer piss away their savings on honey roasted peanuts. ...yeah, that'll fix our economy.

Hmmm... I could see how you'd interpret what I wrote that way.

For clarification: Airlines should market their values, not their price - what sets one apart from another, and why that's better, as opposed to one just being a cheaper option that the other. Undercutting pricing as the sole value proposition is a cheap sales schtick for crappy sales people. If the only reason I choose Southwest (or whoever) over Continental is because I can fly cheaper, then something is wrong with the picture, especially if the difference in price is as slight as it usually is.

My larger point was this low profit margin mess is the airlines' fault in the first place. If they'd never gotten into a price war with each other, the consumers wouldn't have begun to demand cheap prices as their sole motivator when it comes to purchasing airline tickets. Rather than push cheap tickets, they should have been developing programs that instilled loyalty or piqued the interest of potential customers. But they didn't. They took the low road, and now they're reaping what they sowed. It was a myopic marketing plan that produced instant revenue but wasn't sustainable or even terribly profitable.

[TheNiche]

Rather than push cheap tickets, they should have been developing programs that instilled loyalty or piqued the interest of potential customers. But they didn't. They took the low road, and now they're reaping what they sowed. It was a myopic marketing plan that produced instant revenue but wasn't sustainable or even terribly profitable.

Loyalty only matters if you can steal customers from other airlines by trying to leverage brand loyalty, and there's more than one way to skin a cat (compare Virgin Airlines to Southwest). But ultimately there are only so many customers in the skies...and so many planes. As you point out, the result isn't sustainable.

What is sustainable is a significantly lower level of industry-wide service and/or beating back the labor unions and/or frequent government intervention.

[skwatra]

For clarification: Airlines should market their values, not their price - what sets one apart from another, and why that's better, as opposed to one just being a cheaper option that the other. Undercutting pricing as the sole value proposition is a cheap sales schtick for crappy sales people. If the only reason I choose Southwest (or whoever) over Continental is because I can fly cheaper, then something is wrong with the picture, especially if the difference in price is as slight as it usually is.

My larger point was this low profit margin mess is the airlines' fault in the first place. If they'd never gotten into a price war with each other, the consumers wouldn't have begun to demand cheap prices as their sole motivator when it comes to purchasing airline tickets. Rather than push cheap tickets, they should have been developing programs that instilled loyalty or piqued the interest of potential customers. But they didn't. They took the low road, and now they're reaping what they sowed. It was a myopic marketing plan that produced instant revenue but wasn't sustainable or even terribly profitable.

I think Continental and SW have always marketed to their values and to the target customer base. It seems like you're mostly referring to the casual traveler and forgetting about business travel. When flying with work and purchasing all full fare tickets, price is not really in the picture, loyalty keeps me with Continental. They reward me with upgrades, excellent service, a good fleet which they market heavily.

Now that there is often little price difference between SW and Continental, loyalty takes me to Continental for personal travel as well. The only think SW has left (for me) is flexibility in changing tickets. I think that would be a better marketing tool for the casual traveler than "Bags fly free" but I'm guessing its not something they want to advertise heavily.

Back to the point, I've heard more talks about a UA-US Air merger then the Continental Merger. I think either one would be bad, isn't the whole reasoning of moving to Star Alliance because they felt they would be a small fish in Sky Team once the Delta-NW merger was announced? Seems they'll be in the same boat with UA-US Air. And if they merge with United obviously that would put the Houston HQ and hub in jeopardy.

I hope things remain the way they are, I'm pretty happy with Star Alliance (at least the United and Lufthansa part of it, not so much US Air).

[Hartmann]

Reuters is reporting that a no-premium merger between United and Continental could be announced as early as next week.

http://in.reuters.com/article/innovationNews/idINTRE63M08E20100423

[rgr]

united-continental merger would put headquarters in chicago according to people close to the situation.

http://www.chicagotr...rways--20100422,0,4371339.story

Edited April 23, 2010 by rgr

[Trae]

Sucks about possibly losing the headquarters.

[scarface]

This CAN NOT happen!

Not only will Houston lose a big headquarters, but Continential's long deserved reputation will be tarnished. United is not that great of an airline.

[rgr]

"With US Airways stepping aside, Mr. Baker believes the probability of a merger announcement this year has dropped to 40% from 85%."

http://online.wsj.com/article/SB10001424052748703876404575199982700344028.html?mod=WSJ_hpp_sections_business

so we'll see

[Random]

According to the tribune:

Both sides agree that it makes sense to base the new carrier in a major financial center like Chicago, said a person familiar with discussions. However, Continental's home city of Houston would continue to serve as a major operational base for the new company. The two airlines declined to comment.

I wonder what they think "major operational base" would mean.

[rgr]

According to the tribune:

I wonder what they think "major operational base" would mean.

i think they're just talking about retaining iah as a hub. it's a major gateway to latin america.

[Hartmann]

i think they're just talking about retaining iah as a hub. it's a major gateway to latin america.

Yep. The amount of traffic the entrance to the Star Alliance has brought through IAH for Latin and South American connections is pretty unbelievable.

[Trae]

i think they're just talking about retaining iah as a hub. it's a major gateway to latin america.

Yep. The amount of traffic the entrance to the Star Alliance has brought through IAH for Latin and South American connections is pretty unbelievable.

So basically, Houston loses Continental's HQ and Continental's name will most likely be gone, too, in favor of the more known United. The least they could do is keep the name Continental, or if they do have it as United, put the HQ in Houston.

[jgriff]

Continental is a major employer downtown. I think they have around 70 floors spread over two buildings. I wonder how many of these people will be going away. Will we have an empty 50 story building downtown?

Edited April 23, 2010 by jgriff

[rgr]

Continental is a major employer downtown. I think they have around 70 floors spread over two buildings. I wonder how many of these people will be going away. Will we have an empty 50 story building downtown?

worse, yet, a great many people may be out of jobs. you only need one of everything.

[LTAWACS]

There must be something we can do!

[AtticaFlinch]

There must be something we can do!

I'm gonna write my congressman!

[JJVilla]

Why would the weaker of the 2 dectitate the terms? They would have to keep one, if not both as is (name & HQ location).

Edited April 23, 2010 by JJVilla

[citykid09]

There has to be something the State and the city could do to keep the headquarters in Houston. Its going to be a major loss not only to Houston but to the state. IAH will be hurt as well even if it remains a hub. All of the upgrades Continental was helping pay for for the airport. It sucks! Chicago always thinks its entitled to get the better of any deal. Lets hope the state of Texas and the city of Houston can burst their bubble!