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United Airlines & Continental Airline Merger

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by

Naoki Funada

on 24 March 2015

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Transcript of United Airlines & Continental Airline Merger

Post Integration Process
Transaction Highlights
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6
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4
1
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Rationale for the transaction
Thank You.
History of Airline Industry
Deal Structure
Was the Deal Successful?
Timeline
Management Team
Expected Synergies
2) Revenue Enhancement
3) Cost Reduction
1) Access to More Markets
4) Brand Image and Customer Service
Trend of Horizontal Mergers

Four main players controlling 85% of the industry

United was actively looking for potential merger
2005: US Airways merged with America West Airlines

2008: Delta and Northwest merged

2010: United and Continental merged.
Brief airline M&A History
Highlights
Became largest airline in America

Cut capacity between two airlines

Bidding up prices
Cut capacity

Share overhead cost
United Airways is domestic & pacific destination focused

Continental Airlines focused on Latin America & Europe destination

Only overlapped on 3% of non-stop routes
Continental Airlines brand image and customer service

Overcome shortcomings of United Airlines
Announced as friendly strategic merger in May 2010

United and Continental share price rose

Deal closed on October 1st 2010
CEO of Continental take over as the CEO of the newly created organization

United would control 55% of the company
Revenue enhancement

Cost saving synergies

Labor Contracts
IT Systems
Operational Management
Unions on both sides need to agree on a single contract

Seniority

Both companies used different systems

Usage of smaller system caused numerous problems

Software glitches prevent maximizing profit

One of the lowest on-time arrival rate

Continental's Rationale
Expand networks

Increase market share

Ego
Share swap deal valued at over 3 billion USD

Exchange ratio of 1.05

Use ASC820 guidelines
Valuation
Synergies
1 to 1.2 billion USD estimated annual synergies

800 to 900 million USD revenue synergies
Failed to realize synergies

Profits dwarfed that of Delta's

Customer satisfaction decreased


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Full transcript