Justice Department clears United, Continental merger for takeoff

By Jia Lynn Yang
Washington Post Staff Writer
Friday, August 27, 2010; 9:45 PM

The Justice Department greenlighted the planned merger of United Airlines and Continental Airlines on Friday, paving the way for the creation of the world's biggest airline.

In a statement, the Justice Department said it was satisfied that the airlines did not have so much overlap in their routes that consumers would be harmed by higher prices and limited flight choices.

The combination of the country's third and fourth biggest airlines means the number of industry players - and options for fliers - continues to shrink. Upon completion, the proposed $3.17 billion merger will leave just four traditional carriers in the United States, and possibly three if American Airlines responds by bidding for US Airways, as some analysts predict.

But the United-Continental deal, first announced in May, should not significantly affect travel for Washington area residents, who still have other airline options, according to Rick Seaney, chief executive of the Web site FareCompare. He said that US Airways still has a big presence at Reagan National Airport, while BWI Thurgood Marshall Airport has several low-cost airlines, including Southwest, AirTran and JetBlue.

Antitrust regulators said their chief concern about the deal was that there could be too little competition at Newark Liberty Airport, where Continental has a hub. On Friday, the two airlines agreed to transfer their takeoff and landing slots at Newark to Southwest Airlines, allaying government's concerns and prompting the department to close its investigation.

"Southwest is the type of firm that all antitrust regulators and consumer both adore, because they are very aggressive at lowering prices and providing better service," said David Balto, a senior fellow at the Center for American Progress who has practiced as an antitrust lawyer for more than 20 years.

Despite the proposed airline's size, few analysts were surprised at the deal's approval. The two carriers had made a strong case to regulators that there was little overlap between their routes.

Still, the transaction is likely to face resistance from lawmakers who have already expressed concern that the merger will be bad for consumers. At a hearing in June, Rep. James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, had harsh words for United chief executive Glenn Tilton and Continental chief executive Jeff Smisek, who were testifying before the panel.

"You guys hate competition," said Oberstar, who opposes the merger. "You want to be the competitor that dominates the market." Oberstar vowed afterward that if the Justice Department approved the deal, he would demand re-regulation of the airline industry.

During the hearing, Smisek defended the deal, saying, "This is a brutally competitive industry. It is today and will be after this merger."

The companies' shareholders still have to vote on the deal in separate meetings set for next month.

The new airline, which would use United's name, is expected to have roughly $30 billion in revenue a year and carry about 144 million passengers to 370 destinations in 59 countries.

The last big merger of U.S. carriers was the combination of Delta and Northwest in 2008. That deal created the biggest airline in the world - a perch that now looks to be short-lived.

"Airlines used to live by the strategy of grow or die," said Seaney. "Now basically they're living on the strategy of survive and merge."

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