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United Airlines & Continental Airline Merger
Transcript of United Airlines & Continental Airline Merger
Rationale for the transaction
History of Airline Industry
Was the Deal Successful?
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
Became largest airline in America
Cut capacity between two airlines
Bidding up prices
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
Cost saving synergies
Unions on both sides need to agree on a single contract
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
Increase market share
Share swap deal valued at over 3 billion USD
Exchange ratio of 1.05
Use ASC820 guidelines
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