United, Continental CEOs pitch merger to Congress
WASHINGTON
United's Glenn Tilton told the Senate Judiciary Committee that
the new airline will improve its profitability through
efficiencies, not higher fares. /*Continental*/'s Jeffery Smisek
pledged the nearly 150 small communities and metro areas served by
the carriers won't lose service.
Combing their resources will allow the new airline, which will
retain the /*United*/ name, to maximize its use of more than 700
aircraft to compete more effectively on the long haul and overseas
flights that present the best opportunity for profits, Tilton said.
"We're resigned to the hyper competitiveness of the domestic
market," Tilton said. The new carrier's service to smaller
airports and communities remains valuable primarily as a means to
funnel passengers to hubs where they can connect to international
flights, he said.
Airlines have suffered repeated shocks in recent years,
including the 9/11 terror attacks, the SARS virus, volatile oil
prices and the current economic downturn. They have shed more than
158,000 full-time jobs since employment peaked in 2001 and lost an
estimated $30 billion to $60 billion in recent years. Thirteen
airlines have filed for bankruptcy in the past two years.
"There is not one thing that can benefit from the continued
economic fragmentation and fragility of this industry," Tilton
said.
The merger must still be approved by the Justice Department,
which is reviewing its impact on airline competition. A Government
Accountability Office report released Thursday said combining the
two airlines would result in a loss of one competitor in 1,135
markets affecting almost 35 million passengers. That would be
offset somewhat by the creation of a new competitor in 173 markets
affecting 9.5 passengers.
"I take with great skepticism that this merger will lead to
efficiencies in any way," Bill McGee, an expert on the airline
industry with Consumers Union and Consumer Reports magazine, told
the committee. He said that has not been the case with past
mergers. He likened the proposed merger to the marriage of two
people with high credit card debt who hope that living together
will reduce their expenses enough to eliminate their debt.
"We have not seen a merger among the major carriers that has
not led to reductions in service," McGee said.
Similar concerns about competition were raised by the 2008
merger of Delta Air Lines Inc. and Northwest Airlines, but the Bush
administration quickly approved the deal.
The new airline will be headquartered in Chicago, where United
is headquartered. Tilton said the airline promised Chicago
officials when it located its current offices there it wouldn't
move its headquarters.
Asked about the impact of the merger on employees of the two
airlines, Tilton said employees will benefit from "synergies"
created by the combination. Any job cuts, he said, will likely fall
on headquarters personnel, not "front line" employees.
That means a lot of employees at Continental's Houston
headquarters will lose their jobs, Sen. John Cornym, R-Texas, said.
"The prospect of seeing Texans unemployed as a result of this
merger is not a happy one," Cornym said grimly.
But senators are passengers too. Cornym easily extracted
promises from both CEOs that the merger won't eliminate any flights
between Houston and Washington's closest airport, Reagan National,
which is popular with members of Congress.