United-Continental Merger

Will United-Continental impact prices?

Jeremy Hobson May 3, 2010
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United-Continental Merger

Will United-Continental impact prices?

Jeremy Hobson May 3, 2010
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TEXT OF STORY

Kai Ryssdal: The aviation news of this first Monday in May isn’t the biggest of surprises. The long-rumored merger between United and Continental is finally official. It’s going to put the new company into the top slot as the world’s biggest carrier. And assuming regulators approve, it’s going to be called United, but it’s going to fly with Continental’s colors and logo. The airlines say they’ll be able to save about $300 million a year. Passengers? We don’t know yet what they might say.

Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: The man poised to lead the combined airline — Continental CEO Jeff Smiseck — says customers will benefit from the merger and not just because they’ll have access to 370 destinations in 59 countries.

JEFF SMISECK: The synergies that we have projected for the combined company have no airfare increases whatsoever in those synergies.

Smiseck says low-cost carriers will compete on most routes, so prices will be held down.

Seth Kaplan of “Airline Weekly” says that’s true to an extent.

SETH KAPLAN: The price increases, if anything, would be more targeted to certain markets, where putting these two airlines together makes them more dominant even if they’re not exactly a monopoly.

He says routes like Newark to Denver or Chicago to Houston may see higher fares. But he says if service-oriented Continental is running the show, other airlines may have to beef up their own service to compete.

Jim Corridore is an equity analyst who covers airlines for Standard and Poors. He says there may be slight price hikes, but they’ll be a drop in the bucket compared to broader pricing trends.

JIM CORRIDORE: Industry demand is improving. At the same time, capacity has come down over the past two years, so that simple supply-demand equation indicates that fares are likely to rise this summer.

And he says, if prices do rise it may not be worst thing in the world.

CORRIDORE: I think what’s important for customers to recognize is that airlines have been losing money over the past 10 years, and they need to price their product in a way that makes them a little bit of profit.

Last year, combined losses for United and Continental totaled almost a billion dollars.

In New York, I’m Jeremy Hobson for Marketplace.

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