Saturday, August 28, 2010

CO/UA merger approved by Justice Department

Continental and United airlines won Justice Department approval of their proposed merger on Friday, after agreeing to lease landing and takeoff rights at Newark Liberty International Airport to discounter Southwest Airlines.

Justice said late Friday that it has closed its antitrust review of the United-Continental merger because it is satisfied with the carriers' deal to reduce their combined market dominance and increase competition at Newark. Continental currently operates a hub there and has the largest market share in the greater New York air travel market, the USA's largest. In addition to Newark, New York is served by LaGuardia and John F. Kennedy airports. Together United and Continental currently offer 442 daily flights at Newark.

United's and Continental's respective shareholders are scheduled to vote on the merger on Sept. 17. Assuming they approve — and there's no significant effort among shareholders to reject the deal — the carriers now expect to close the merger deal on Oct. 1.

In addition to paving the way for the United-Continental merger to be completed, the deal to lease Newark landing and takeoff rights, called slots, would give Southwest the greater access to the huge New York market that it has been seeking, mostly without success for 14 months. Southwest used to eschew the New York market because its notoriously congested airports presented challenges for its operating style, which typically calls for planes to remain on the ground between flights for only about 30 minutes.

But in recent years Southwest has sought to incrrease its involvement in high demand markets where revenue opportunities are greater. Last year it launched service at LaGuardia. However, Southwest's ability to grow in the New York market has been limited by its inability to obtain slots, which are time-specific rights to land and take off. It currently offers only 8 daily flights at LaGuardia, making it one of Southwest's least heavily served destinations.

New York's airports are among only a handful of U.S. airports where carriers need to possess slot rights to operate. Slots are used to limit the number of flights that operate at airports from runway, terminal and airspace capacity is outstripped by consumer demand to fly to and from those airports.

Continental CEO Jeff Smisek, who has been named to run the the new United, as the merged carrier would be called, said the lease of Newark slots to Southwest is "a fair solution that would allow Continental and United to create an airline that will provide customers with an unparalleled global network and top quality products and services, while enhancing domestic competition at Newark."

Bob Jordan, Southwest's executive vice president of strategy and planning, said that instead of buying new planes to serve Newark, the carrier will reduce service on unprofitable or less profitable routes or times, and then use the airplace freed up by those changes to serve Newark. After growing at a double-digit pace through the rapid expansion of its fleet in the 1990s and first half of the 2000s, Southwest in the last three years has slowed its growth by using new planes only as replacements for old planes.

"We've seen tremendous demand for Southwest Airlines in the New York City/Newark area in the past year," Jordan said. "Adding Newark provides an excellent complement to our LaGuardia and Long Island service, giving customers one more option for travel to and from the greater New York City/New Jersey area. This service also will provide a needed injection of low fares and competition into the New York/Newark market."

(Dan Reed - USA Today)

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