The chief executives of United and Continental airlines pitched their proposed merger to senators Thursday as a good deal for consumers, airline employees and the small communities that rely on them for service.
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 Sept. 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.