United Continental Merger
Essay Preview: United Continental Merger
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With the merger of United Airlines and Continental Airlines, their combined operations will make them the largest airline carrier in a $3 billion deal. With this merger, unlike most others, many roles will continue to function as United will function with a new name, new aircraft designs and two CEOs maintaining different functions in the company. Many of the daily operations and headquarters will remain in Chicago where United Airlines corporate headquarters is located. The combined revenues for both airlines according to the 2009 reports show both companies at $29 billion and is expected to increase in 2010 once the merger is completed.
With this merger, there will be no expected downsizing as would have with other mergers, since both airlines service routes are similar with the merger; they now will extensively cover the entire globe under one company. There will be an increase in generated cost and revenue of about $1.2 billion annually with $800 and $900 million of that resulting from a larger area of operations.
Executives expect to save $200 – $300 million annually by reducing the over head costs and eliminating duplicate routes and administrative functions that both companies have.
Prior to the merge of United and Continental Airlines, the companies were ideally running under as a monopolistic competition, offering the same routes, planes and amenities. As the merger took place, the newly formed airlines will seem to have changed gears into a monopoly market. Controlling all aspects of prices, routes, schedules, and operations; the new United Airlines has the potential of driving out their competition. With this new merger, United Airlines has the opportunity to dominate the market. The will be able to set the prices in the market either lower than usual to lure in the competition and then drive out the smaller companies that are not able to compete with United and make the profits and earnings they need in order for the smaller companies to stay afloat. The competition in this market will go down and basically all airlines will follow what United does in order to keep up with their large market and financial backings.
With this merger, United airlines will see an increase in profits immediately due to the world wide coverage that both airlines had and with the minimal overlap of routes they are able to expand their service with little impact of their cash flow.
With the merger, United has placed almost a stop in competition with pricing and routes because that have were allowed to join forces with another top competitor in the airlines market. The market will not be spread evenly amongst the competitors in the same market. Prices will eventually increase and flights will decrease and the demand for more flights will be high. This will allow United to expand their routes and increase their prices with the changes in fare pricing and market availability. This will not only slow