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United, Continental complete combination

By DAVID KOENIG AND JOSHUA FREED

AP Airlines Writers

POSTED:
LAST UPDATED: 12:10 p.m. HST, Oct 01, 2010



United and Continental closed the deal on Friday that will create the world's biggest airline, ending Delta's brief hold on the top spot.

The transaction puts the two airlines in the same holding company, United Continental Holdings Inc., which will spend the next year combining them into a single airline. The combined airline will be called United Airlines, with Continental's colors and globe logo on the tail.

For now, Continental customers will continue to check in through Continental's website or at Continental airport counters. The same is true for United customers. Their frequent flier programs will stay separate for now, too.

The company said travelers should begin to see a more unified product in the spring. It expects to get a single operating certificate from the Federal Aviation Administration in early 2012.

Some industry watchers worry that the deal will lead to higher fares, although United and Continental have said that competition from low-cost airlines will keep prices from rising.

Just two years ago, the U.S. had at least five major international airlines. That began to change when Delta Air Lines Inc. bought Northwest in October 2008, making Delta the world's biggest airline until Friday.

United and Continental together carried 8.7 percent more traffic than Delta through August of this year. The combined airline would have about 5,800 daily departures, versus Delta's 5,715.

Their combination leaves the U.S. with three dominant international airlines (United Continental, Delta, and AMR Corp.'s American), and a big domestic hauler, Southwest Airlines Co.

United Continental is hoping that a larger route map will attract more corporate travelers, who spend more. It should also reduce costs, as Continental's headquarters and operations center in Houston are eliminated, along with other overlaps.

The company said it expects as much as $1.2 billion in combined new revenue and cost savings by 2013, including up to $900 million in new revenue as its larger network attracts new passengers.

J.P. Morgan analyst Jamie Baker wrote in a note that he is "doubtful" of those claims. He wrote that Delta management claimed $1.5 billion in similar gains from the Northwest deal, but its margins have been about the same as the rest of the industry.

Baker expects $400 million in extra labor costs at United Continental as it integrates two unionized work forces.

United Continental Holdings is being run by former Continental CEO Jeff Smisek. It's based in United's headquarters in Chicago, and United shareholders will own about 55 percent of the stock.

Under the deal, Continental shareholders received 1.05 shares of United stock for every share of Continental. The old Continental shares have stopped trading on the New York Stock Exchange.

Shares in the new company will trade on the NYSE under the ticker symbol "UAL," which was United's old ticker symbol before filing for bankruptcy protection in 2002. It emerged in 2006 and traded under the symbol "UAUA."






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