The merger builds on the similar but slightly smaller merger last year of Delta Airlines and Northwest Airlines which was itself revolutionary because of its unprecedented scale at the time. European carriers have also been consolidating with Air France, KLM and Martinair for instance, now operating under one corporate umbrella and Lufthansa similarly bringing Swiss, British Midland and Austrian under its wing.

The all-stock deal will form a coast-tocoast American mega-carrier 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.

The airlines plan to complete the deal by end of this year but must still get the blessing of the Justice Department’s antitrust division. The merger also needs the crucial backing of employee unions, whose opposition to similar moves in the past has scuttled a number of potentialdeals.

The new airline will be named United Airlines, but the aircraft livery, logo and colours will be Continental. The two said they will keep the route structure for both carriers in place, with Continental’s existing hub at Houston as the main hub for the mega-carrier. The two are anticipating cost savings of nearly US$1billion.

Top US cargo carrier
The merger also would leap-frog United-Continental into the top spot among US passenger airlines in termsof cargo and mail traffic. United and Continental had a combined US$902million in cargo revenue in 2009, but thatfigure was down about a third from 2008.United, the third-largest cargo carrieramong the passenger airlines last year,saw its cargo revenue fall 37.2 per centfrom 2008 to $536 million.

Delta was the top cargo carrier, with $788 million in revenue in 2009, but the Atlanta-based carrier also is grounding the 747 freighters that Northwest used to operate on trans-Pacific lanes and will focus now only on belly freight.

Combined, United and Continental have 21 per cent of domestic passenger capacity through 10 US hubs, compared to Delta’s 20 per cent. Globally, the merged companies would have a seven per cent market share and serve more than 144million passengers in 59 countries.

“The combination of United and Continental brings together the two most complementary networks of any US carriers, with minimal domestic and no international route overlaps. The combined company will offer enhanced service to Asia, Europe, Latin America, Africa and the Middle East from wellplaced hubs on the East Coast, West Coast, and Southern and Midwestern regions of the United States,” the carriers said in a joint statement.

Glenn Tilton, chairman, president and chief executive officer of UAL Corp., will serve as non-executive chairman of the combined company’s Board of Directors through December 31, 2012 or the second anniversary of closing, whichever is later. Jeff Smisek, Continental’s chairman, president and chief executive officer, will be chief executive officer and a member of the Board of Directors. He will also become executive chairman of the Board upon Tilton’s ceasing to be non-executive chairman.

“Today is a great day for our customers, our employees, our shareholders and our communities as we bring together our two companies in a merger of equals to create a world-class and truly global airline with an unparalleled network serving communities worldwide with outstanding customer service,” said Tilton.

“Building on our Star Alliance partnership, we are creating a stronger, more efficient airline, both operationally and financially, better positioned to succeed in a dynamic and highly competitive global aviation industry. This combination will provide a strong platform for sustainable, long-term value for shareholders, opportunities for employees, and more and better scheduled service and destinations for customers. Knowing and respecting our colleagues at Continental as we do, we are confident that together we can compete successfully in what is now, clearly, a global marketplace.”

Smisek said: “This combination brings together the best of both organizations and cultures to create a world-class airline with tremendous and enduring strengths. Together, we will have the financial strength necessary to make critical investments to continue to improve our products and services and to achieve and sustain profitability.”