Continental and United airlines plan to merge, the carriers announced Monday, creating the world’s largest airline by revenue and the largest cargo carrier among passenger airlines in the United States.
The merger would take consolidation in the U.S. aviation industry to a new level, following the combination of Delta Airlines and Northwest Airlines and test the ability of the carriers to operate profitably with new scale and market power.
The airlines plan to complete the merger by end of this year and 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, while creating cost savings synergies of more than $1 billion.
The merger also would vault United-Continental into the top spot among U.S. passenger airlines for freight and mail traffic, although those markets have been sharply diminished in recent years as shipping patterns have changed and airlines have scaled back capacity.
United and Continental had a combined $902 million in cargo revenue in 2009, but that figure was down about a third from 2008. United, the third-largest cargo carrier among the passenger airlines last year, saw its cargo revenue fall 37.2 percent from 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.
Europe’s airlines also have been joining forces at the upper end of the size spectrum as the European Union has erased borders within the continent and low-cost startups have taken over formerly lucrative short-haul passenger markets.
Air France and KLM now operate under a single corporate umbrella and Lufthansa has reached across European national borders to include Swiss and British Midland in its portfolio.
United, which already has a commercial agreement with Continental, had spoken this year about a merger with US Airways but those talks failed. United and US Airways were close to merging in 2001 but the U.S. Justice Department killed that deal as anti-competitive shortly before the September 11 terror attacks pushed the airline industry into a new era of steep financial losses.
The United-Continental merger now faces scrutiny from a Justice Department that has suggested it would be tougher on antitrust issues under the Obama administration. But the recent combination of Delta and Northwest makes it unlikely a merger of similar carriers would falter on competition concerns.