U.S. vows critical look at United-Continental link

Posted May 14, 2010 at 6:36 p.m.

By Julie Johnsson | Will the United-Continental merger fly with antitrust regulators?

The two airlines intend to formally link operations to form the world’s largest carrier by the close of the year. First, they’ll have to convince state and federal regulators that their new behemoth won’t harm consumers by hiking prices or dominating competitors.

Executives for United and Continental airlines have said they are certain their transaction will pass muster with antitrust authorities and that they expect to close their $3 billion-deal during the fourth quarter of 2010.

Legal experts are less confident of a speedy review for a deal that could test the Chicago loyalties of both President Barack Obama and U.S. Transportation Secretary Ray LaHood. United is headquartered in Chicago; the new carrier, also to be called United, would likewise be based here.

However, the Obama administration has vowed to take a more critical look at mega-mergers that leave markets controlled by a handful of giant players than antitrust enforcers did under former President George W. Bush

In testimony before Congress on Friday, Attorney General Eric Holder pledged that the Justice Department will conduct a fair and thorough review of the proposed deal. “I can assure you that political considerations will not be a part of that process,” said Holder, according to a report by Reuters.

Ohio Attorney General Richard Cordray is also leading 15 states in a rigorous investigation of the merger. Cordray said Friday that his office would ensure the deal wouldn’t harm consumers by saddling them with higher fares, fewer choices in flights or a drop in service quality.

Analysts have thought that Continental’s hub in Cleveland, the smallest of three hubs in its network, would be most vulnerable to cuts made by the carriers over time because of its proximity to United’s fortress hub at O’Hare.

“Ohio has a lot on the line with this deal,” Cordray said. “With all the problems for taxpayers associated with corporations that become ‘too big to fail,’ we need to be especially diligent as antitrust enforcers in looking carefully at the potential effects of consolidation in critical sectors of our economy, such as the airline industry.”

Antitrust regulators will likely closely examine how the airlines’ networks overlap, paying special attention to routes where the merged entity would gain sufficient market share to potentially quash competitors. Although market concentration is less of a concern for United and Continental, which have relatively little overlap, their deal is likely to draw more scrutiny than that of the last big airline merger: Delta’s 2008 takeover of Northwest Airlines.

“We can confidently say that this merger won’t receive the same light treatment that Delta and Northwest [airlines] did” under the Bush Administration in 2008, said Brian Havel, a professor of international law at DePaul University’s College of Law.

Proposed revisions to horizontal merger guidelines used by the Federal Trade Commission and Justice Department would make it tougher for the merger partners to claim their tie-up would create new efficiencies, or that the market power they would gain could be offset by new entrants to their industry, Havel said.

“This could be problematic for United-Continental, particularly since enhanced efficiencies seem to be their over-arching justification for this merger,” Havel said, referring to the $1.2 billion annual boost that United and Continental project they’ll gain by linking operations.

“Additionally, the fact that the two airlines will merger into the world’s largest air carrier is going to be a red flag for antitrust enforcers,” he added.

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  1. Michael May 14, 2010 at 8:35 pm

    It needs to happen. There are far too many Airlines in the United States. Since deregulation, 9/11, GFC etc Service and Quality of Airlines in North America is absolute Rubbish and no one is making any money. I support this merger as i did with Delta/Northwest. Perhaps now American will merge with U.S Airways…?

  2. EMAN May 14, 2010 at 10:49 pm

    American already said they aren’t gonna merge with anyone, not sure what’s gonna happen to US airways

  3. ugottabekidding May 14, 2010 at 11:07 pm

    I’m sure they’ll give this the same scrutiny that collapsed our oil companies to about 5 and resulted in nothing but higher prices and a monopoly. Nuthin’ but a bunch of liars.

  4. mark May 15, 2010 at 12:42 a.m.

    Its called rent seeking. The Lords in D.C. demand tribute for conferring a freedom you should get for free. There is no reason this merger should not get “approved”. Nobody will be forced to fly United. Southwest can enter markets at will. There is not a chance in Hades United will dictate fares. But palms must be greased because that’s how politics is done in corruptocracies like the USA.