I still don’t like this merger too much.  I like that the identify remains mostly Continental and I like the fact that the Continental management appears to be the group that will run the airline.  However, I see quite a few risks here.

1)  While I have more confidence in the Continental management team than United’s, I’ll point out that Jeff Smisek is still a somewhat untested airline CEO.  He’s had about 4 months in the job at Continental and he’s been pretty aggressive in just those 4 months.  So far, I think I would be a bit more comfortable with Larry Kellner in control.   He wasn’t quite so “in your face” but still managed to be very tough when it came to making decisions.

2)  Glenn Tilton appears to be given a nice cushy position as non-executive Chairman of the new company but I’m not so sure he won’t try to influence the direction of the company.  He was brought in to execute a bankruptcy and always appeared to want to sell the company and move on but his actions said a bit more.  Is he ready to take a back seat?  I’m not so sure he is.   This isn’t a man who is used to taking a back seat to anyone.

3)  Employees and labor.  United employees might have something to look forward to in a management team that acts like it wants to run an airline.  However, Continental employees appear to be having some trouble figuring out why this is good for them.  They had it good and now they can look forward to some rather bad karma and aggressive behaviour from their brothers and sisters at United. 

I also have trouble seeing United’s labor unions cooperating.  They’re pretty militant and often remind me of American Airlines’ labor group.  While Continental’s labor groups generally accept that it is a new world out there, United’s seem to want to return to the glory days of the mid 1990’s.   And who decides seniority integrations?  Better yet, is the bad example set by US Airways EAST/WEST groups going to set a precedent for becoming recalcitrant if they don’t like the decision?  Part of me believes that United’s labor groups will most likely attempt to shove their desires down Continental’s groups’ throats.

4)  Fleets in these airlines show some opportunities but they also show some risks.  In the Boeing area, there is some room to “harmonize” the fleets.  Both operate 767’s, for instance, but different variants.  That’s a good thing if the pilot and flight crews are able to agree on seniority lists and get on with things.  It’s a bad thing if you have to use one part of the company to operate one variant and another to operate another variant.  The same is true on the 777 and 757 fleets. 

Both have orders for 787 aircraft and I suspect those will remain on the books .  United ordered A350’s and I kind of think those orders might just go away.  It’s the domestic fleet I wonder about.  UAL uses primarily A320 series aircraft and CAL uses primarily 737 series aircraft.   Again, if the pilots and flight crew can get together on labor agreements and seniority, it would be good to settle on one type.  The two aircraft are so similar that it is silly to operate two different fleets serving the same purpose.  (This really isn’t the case in the Delta/Northwest situation where the fleets were dissimilar enough to offer some opportunity for “right sizing”.) 

5)  Regional airlines.  United has relied more and more on regional airlines to serve mainline routes.  Continental has used them much more in the model of a traditional feeder network and primarily because of scope clauses with their pilots.   There are more than 10 different regional airlines serving the two airlines.  They need to consolidate and, frankly, they should consider buying 2 or 3 of those regional airlines and harmonizing their services a bit more.  Right now, I see a mad scramble to keep a lot of different kinds of regional aircraft in service with the two and I think those regional airlines are going to do anything they can to keep their contracts.  Service will suffer with so much competition.

6)  Service products.  Continental has a nice, focused service product for two classes (economy and business) that has worked fantastically for them.  United has 3 or 4 depending on how you count them.   First, business, economy plus and economy.  How do you harmonize these service offerings and keep both frequent flier groups happy.  A lot of Continental OnePass members already feel a bit cheated with the entry into Star Alliance and what it entitled them to on United and US Airways.  Those travelers count and you have to find a way to keep them happy.  Whose program survives and, at the same time, how do you keep from diluting the program(s) by being all things to all people?

Call me crazy but if I had been Continental, I would have encouraged a US Airways / United merger just to watch that organization melt down while I made plans to capture their business the old fashioned way:  By competing with good service.

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