May 5th, 2010

Continental and United Sitting in a Tree

Well, they’re no longer just sitting in a tree making eyes at each other, Continental Airlines and United Airlines are engaged to be wed in airline matrimony. Both airlines announced on Monday that they had agreed on a “merger of equals” with the new entity being United Airlines. I am not going to go into the merger details other than to say that United stockholders will own 55% of the new entity and Continental stockholders will own the remaining 45%. What I would like to discuss are a few predictions I have for the next few years.

Before we dive in to predictions, let me give you a little background on myself. I am a compulsive traveler. After working in the oil industry and traveling for work, I became extremely focused on cheap airline fares and earning miles on Continental, my hometown airline.. This “obsession,” if you will, has continued and led me to be introduced to a number of Continental employees. You learn a lot about the airline industry when you sit down and chat with someone who flies day in and day out. I would like to make a disclaimer that none of my predictions are from Continental or United employees. This is simply my take on the events through my insight and knowledge of the industry.

The first thing we should address is the movement of headquarters from Houston to Chicago. There has been somewhat of an uproar about the possibility of lost jobs in Houston and people are concerned, as they should be. However, it is, in my opinion, way too early to know what is going to happen to the jobs here in Houston. With Jeff Smisek, the CEO of Continental and the new merged airline, keeping a CEO’s office in both Houston and Chicago, I would say there is still a good chance that a number of jobs stay in Houston. With Smisek at the helm, Continental is poised to set the culture, IT infrastructure, and management standard in the merged airline. This would mean that Houston employees would have to be kept and either moved to Chicago or continue in an office here. Continental also has a large flight simulation facility and maintenance base at Bush-Intercontinental Airport. Both of these facilities are critical in the day to day operations and will definitely stay. This is a blow to those naysayers who think that IAH will no longer be a hub. In my opinion, that view is completely bunk. Let’s get started on why.

Nostalgic-Continental-100

Continental Airlines has one of the biggest Latin and South American route network of any U.S. carrier by far, with most of the destinations being serviced out of Houston. This network is a huge gain for United, who in the past has struggled with service to destinations south of the border. United isn’t going to just kill off a great route network and relationship with tons of customers who use IAH frequently. Nope, if anything they will continue to grow the Latin America market and possibly add service to Santiago, Chile and maybe La Paz, Bolivia or Cuzco, Peru. I could definitely see a seasonal flight to Cuzco to funnel tourism traffic to Machu Picchu.

A few more routes that I see possibly springing up after the merger is complete are: Houston to Munich to feed Lufthansa connections there and Houston to Brussels to feed Brussels Airlines and their amazing African route network. There is also the potential for non-stop Middle East flights out of IAH, particularly Kuwait City, Dubai, and Doha. United serves Kuwait City and Dubai out Washington Dulles International but I could see them moving the flights to Houston to try and bring in more of the oil and gas flyers.

There is also Continental Micronesia, an operation based out of Guam. This has the potential to grow a lot and connect to United’s lucrative intra-Asia routes. A lot of government and contractor travel happens through Guam. With little to no competition on the routes, the Micronesia division is a real moneymaker. Don’t be surprised if you start seeing great routings from Guam to a lot of new places in the Pacific. Continental might even be brave enough to start a non-stop Houston-Guam flight, eliminating the need to stop in Honolulu.

My only worries out of all of this is the possibility of an increase in fares and the loss of Cleveland as a hub. With one less airline, it is inevitable that fares will go up, even if only by a small amount. We should all be prepared to pay a little more when booking our travel until the market equalizes and competition fires back up. Cleveland has been a Continental hub for a while and though it is the smallest in the network, it was a welcome city to connect through. The small airport made it easy to get from flight to flight and there was little issue with missed connections. With the changes coming, Cleveland will have a hard time staying alive with United’s Chicago hub right next door. It will be around for a while, but I would not doubt that the new airline will slowly remove service over the coming years.

Overall, I think the merger is a good thing for the city and for Continental flyers. I was a little worried that the new airline was going to embody the United culture with a Continental CEO as merely a figurehead, but I do not think that’s what is happening. The fact that they have decided to keep the Continental logo and colors speaks to their goal of truly integrating the two companies, even if they did decide to keep the serif font. So Houston, let’s not be so quick to assume that this spells the end of Continental in Houston. Let’s be glad that two airlines are staying in business by becoming one airline and hope that fares don’t rise too high. Happy travels!

[Photo Courtesy of WorldOne’s flickr]

— Stephan

Comments

TomPier — Friday, May 7, 2010 3:00 pm

great post as usual!

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