Merger Will Result in Loss of Airline Jobs in Chicago

Posted on May 2, 2010

Continental and United Airlines have agreed to merge, which many say will result in the loss of hundreds of airline jobs in Chicago and in other parts of the United States where Continental has established hubs (click here).

A formal announcement will come on Monday.

According to Chron.com, the carrier will be based in United’s home of Chicago and take United’s name, the sources said. Jeff Smisek, chairman, CEO and president of Houston-based Continental, will be CEO of the merged carrier and he will have offices in Houston and Chicago, they said.

United’s CEO Glenn Tilton will become non-executive chairman until Dec. 31, 2012, or on the second anniversary of the closing of the deal, whichever is later. Then Smisek takes the helm as chairman.

The deal — which had earlier bogged down over price — will be an all-stock swap. Continental shareholders get 1.05 United shares for each Continental share they own.

That values the deal at about $3.2 billion, based on Friday’s closing share prices and the latest publicly available outstanding shares. United’s shareholders will own a 55 percent stake in the merged company with Continental’s shareholders holding the remaining 45 percent.

Houston is expected to be the largest hub of the combined carrier and continue to be its gateway to Latin America. Continental employs 16,500 people in Houston and the sources said it should remain a top private employer in the city.

Jobs at the combined carrier will be cut by attrition, retirement and voluntary programs but the sources said Houston employment may grow in the long term since Houston will likely add destinations.

“The employees at the Houston hub, they are going to stay there. It’s the most profitable of the Continental hubs,” said Pete Garcia, president of aviation consulting firm Pete Garcia International. Garcia isn’t involved in the transaction, but he’s familiar with both airlines’ operations.

The jobs most at risk are probably in administration and reservations, said Garcia, who was a Continental vice president until starting his own firm more than two years ago.

Besides Smisek, other management members have yet to be named, but leaders are expected to come from both airlines.

The combined airline’s board of directors will have 16 members, including Smisek, Tilton, two union members and six directors from each of the company’s boards. United has 13 board members now, including Tilton and two union members. Continental has 10 board members including Smisek and no union members.

The combined company will have annual revenues of $29 billion, based on 2009 numbers, and the combination will lead to $1 billion to $1.2 billion annually in cost savings and additional revenue by 2013.

The merger is expected to close by year’s end, pending shareholder and regulatory approval.

The new carrier will serve 370 destinations and 59 countries, with hubs in Newark, Houston, Chicago, Cleveland, Los Angeles, San Francisco, Denver, Washington, D.C., Guam and Narita, Japan, according to the Houston Chronicle.

Continental has more than 14,000 employees in New Jersey and is one of the state’s largest employers. Newark Liberty International Airport is a key hub because it serves as a gateway to Europe, with Continental flying to 30 overseas cities from the airport. Continental also is the dominant domestic route carrier in the New York market, while United has only a small presence in the region.

Jobs at the combined airline will likely be cut through attrition, retirement and voluntary program, according to the Chronicle report, which quoted sources familiar with the deal.

Newark most likely will grow as an international hub, taking some of United’s flights from John F. Kennedy International Airport, said travel consultant Terry Trippler, founder of rulestoknow.com, an online guide to airline industry policies.

“The two biggest winners will be Newark and San Francisco – both will gain in international flights,” Trippler said.

The new airline will have more combined routes than the Delta-Northwest merger, which could raise the specter of antitrust concerns, he said.

The airlines are merging to save money after a tumultuous period of losses and fewer passengers the past several years. JPMorgan estimates the combined airline will cut its number of available seats by 8 percent to achieve a $600 million operating profit next year.

United-Continental will have the biggest share of traffic on routes across the Atlantic and Pacific. This would make it a formidable competitor to Delta and other foreign carriers, industry experts say.

Travelers probably will see price hikes, though frequent flyers could benefit from combining mileage rewards from both carriers, said Raphael Bejar, chief executive of Paris-based Airsavings, which helps improve operations for airlines around the world.

Two years ago, Continental and United came close to merging but Continental officials decided to remain independent, instead forming an operational alliance with United by joining the Star Alliance.

Less than three weeks ago, they returned to the negotiating table soon after it was revealed that United was in merger talks with US Airways. The Tempe, Ariz.-based airline announced on April 22 it had ended talks with United.