United, Continental Complete $3.47 Billion Merger

Continental Airlines CEO Jeff Smisek
Jeff Smisek, chief executive officer of Continental Airlines Inc. Photographer: Jin Lee/Bloomberg

United Airlines parent UAL Corp. and Continental Airlines Inc. completed their $3.47 billion all-stock merger, forming the world’s largest carrier and clearing the way to begin combining operations.

The carriers are now wholly owned subsidiaries of United Continental Holdings Inc., the Chicago-based company said in a statement. United Continental’s shares rose $1.09, or 4.6 percent, to $24.75 at 9:33 a.m. on their first day of New York Stock Exchange composite trading, under the symbol UAL.

Passengers won’t notice immediate changes, as the companies will fly separately until U.S. regulators give them permission to operate as one airline. Adding more business travelers is key to growth, said former Continental Chief Executive Officer Jeff Smisek, who will continue to run the merged company.

“Business travelers have a higher yield because they book at the last minute,” Smisek said in an interview on Bloomberg Television. “Because of the network, it will be very attractive for them.”

The company also announced the makeup of its 16-member board, including six directors from each carrier. The board includes Smisek; Glenn Tilton, the former United chief executive officer who is non-executive chairman of the combined airline; and two representatives from United’s unions.

The carriers, with $29 billion in combined revenue last year, will have about 700 jets in their main fleets and employ 87,000 workers. The new carrier expects as much as $1.2 billion in annual savings and new revenue from the merger by 2013. It has about $9 billion in unrestricted cash.

Major Hubs

United was the third-largest U.S. carrier by traffic and Houston-based Continental was No. 4. The combined airline’s major hubs are in business centers including New Jersey’s Newark airport, Washington’s Dulles airport, Chicago O’Hare, Houston, Los Angeles and San Francisco.

The new United is being advised by Bain & Co., the consultant that Delta Air Lines Inc. used to mesh operations with Northwest Airlines Corp. starting in October 2008, a process that took about 1 1/2 years to complete. United leapfrogs Delta as the world’s largest carrier.

Fully combining operations will take about 18 months, Smisek said.

United and Continental are planning toward a “Customer Day One” in 2011’s first half, when key customer processes such as airport check-in and seat upgrades are jointly administered.

United’s Mileage Plus and Continental’s OnePass frequent-flier programs will operate independently for several months until the reward points are combined, according to the airlines.

The airlines must continue separate flight operations until the U.S. Federal Aviation Administration grants them a single certificate for those procedures, which will also let them combine reservation and dispatch systems.

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