Chicago: United Airlines and Continental Airlines have agreed a three-billion-dollar merger to create the world’s biggest carrier amidst an industry-wide slump, news reports said Monday.
The all-stock transaction, approved by the United board on Friday and Continental’s on Sunday, was to be formally announced on Monday, reports said.
The new merged giant, keeping the United name, will account for 7% of global airline capacity, ahead of US rival Delta, which currently leads with 6%, the New York Times reported.
It will also have a 21% share of the huge US air market, the Times added.
Airlines around the world are grappling with high fuel prices, growing competition from low-cost carriers and a traffic slump caused by the recession, tightened security after attacks and crisis events such as last month’s Icelandic volcano.
Executives expect the new carrier to generate cost and revenue gains of about $1.2 billion, with up to $900 million of the savings coming from linking Continental’s strong Latin American and Europe routes to United’s connections in Asia, reports said.
The carriers expect to continue serving the 370 cities where United or Texas-based Continental currently fly.
The transaction could face intense US government scrutiny however due to the size of the deal, the Wall Street Journal said. President Barack Obama’s administration has vowed to reinvigorate anti-trust enforcement.
The new company would keep United’s corporate headquarters in Chicago. United’s chief executive Glenn Tilton would become non-executive chairman of the board for two years and Continental’s chief executive, Jeff Smisek, becoming chairman, the New York Times said.
The merger, expected to close in the fourth quarter, is seen as part of an industry-wide move by airlines to survive in the crisis-stricken industry. British Airways is going through a tie-up with Spanish carrier Iberia to avoid being sidelined by European rivals Air France-KLM and Lufthansa.
US Airways broke off merger talks with United last month, but said it expected consolidation of the fragmented airline sector in the near future.
“It remains our belief that consolidation makes sense in an industry as fragmented as ours,” said US Airways chairman Doug Parker.
Parker stressed that consolidation would lead “to a more efficient industry, better able to withstand economic volatility, global competition and the cyclical nature of our industry.”
The economic crisis has driven airline alliances and steep cost cutting, as the sector has buckled under the global economic downturn, which has slashed demand for air travel and persuaded many cash-strapped travellers to fly with cheaper low-cost carriers.
The merger, said the Journal, would give passengers of the two airlines access to many new destinations, as United serves 100 cities that Continental does not, and Continental flies to 136 cities that United does not.
Shares of both airlines are expected climb in Monday trading.