Will United Deal Cost Consumers?

With Announced Continental Merger, Goodwill Toward Legacy Airline Is Up in the Air

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NEW YORK (AdAge.com) -- Greater control over pricing and more efficiency in flight routes are a few of the major benefits United and Continental tout in their recently announced $3 billion merger. But United may end up with another boon: the rub-off from Continental's surprisingly high goodwill among consumers.

WILL IT FLY?: Among travelers, Continental is king.
WILL IT FLY?: Among travelers, Continental is king. Credit: John Gress
As the industry has consolidated, mega airlines have stripped nearly every free amenity from their offerings. But Continental has the distinction of being one of the only U.S.-based legacy carriers with any significant amount of consumer goodwill in its back pocket, say industry analysts. Its customer service and frequent flyer programs are highly regarded throughout the industry.

Robert Herbst, an airline analyst and founder of airlinefinancials.com, said Continental's big challenge will be transferring its image on to United's passengers and employees, who he said have been unhappy for years. "United has done a lot to ruin their image from what it was 10 to 12 years ago," Mr. Herbst said. "It was a strong carrier in the U.S. but has become one of the weakest."

In a $3 billion dollar deal announced early last week, United agreed to buy Continental. The new holding company will be called United Continental Holdings, and the name of the airline will be United. Jeff Smisek, CEO of Continental Airlines, was named chief executive of the newly merged entity, but Continental's logo and font would be used on planes and branding materials.

Mr. Herbst said the merger is the most positive thing that's happened in the industry in the last decade. "Long term, it will help make the industry healthier again -- it's losing billions of dollars a year -- and this is a very positive step to turn these losses around into making profits for the industry, not just the merged airlines," he said.

'Last of great legacy carriers'
Chris Elliott, travel blogger and syndicated travel columnist, has flown both airlines and agrees that Continental is the stronger brand. "Continental is the last of the great legacy carriers," Mr. Elliott said. "I've had good experiences flying them, and they're known for having a proactive customer service department."

And therein lies an opportunity to stand out, considering most airline advertising today focuses on price -- a result of the commoditization of airline travel, said Mr. Elliot.

"Consumers act in a way that suggests they believe in commoditization but the fact is they know there's a big difference between JetBlue and American," Mr. Elliott said. "We act like price is the most important thing, and this confuses the airlines."

He said United needs to explain why this merger makes sense for the consumer. And he doesn't want to see route maps.

"I want to see the inside of your new planes and the comfortable new seats in economy class," Mr. Elliott said. But there's reason to be skeptical. Mr. Smisek has, since taking the reins at Continental, imposed exit-row charges and eliminated free food on domestic flights. And, points out Mr. Herbst of Airlinefinancials.com, most consumers do still shop based on price.

Mr. Elliot personally doesn't believe the deal offers any real benefit to the consumer. "Fares will be higher, and service will be reduced," he said. "They will have more fortress hubs becoming a de facto oligopoly, allowing them to set their own prices. We become captives of the airline, and that's how they make money." And so far United hasn't done anything to convince people that the combination is good for them.

Charlie Leocha, president of the consumer-travel alliance, said the benefit to consumers could end up being increased access at more destinations for low-cost carriers. "Now that they are combined, Continental and United will probably have to give up some slots at certain airports," Mr. Leocha said. "This gives low-cost carriers the chance for new routes to airports they weren't flying to previously."  

Credit: Ad Age Research
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