U.S. Department of Justice Says United and Continental Airlines Can Merge

The U.S. Department of Justice’s Antitrust Division issued a press release on August 27, 2010, stating that “in light of the agreement by United Airlines Inc. and Continental Airlines Inc. to transfer takeoff and landing rights (slots) and other assets at Newark Liberty Airport to Southwest Airlines Co., the department has closed its investigation into the proposed merger of UAL Corporation, the parent of United, and Continental.”  The closure of DOJ’s investigation will allow Continental and United’s plans to form the world’s largest airline to go forward.   From the press release:

The department conducted a thorough investigation. The proposed merger would combine the airlines’ largely complementary networks, which would result in overlap on a limited number of routes where United and Continental offer competing nonstop service. The largest such routes are between United’s hub airports and Continental’s hub at Newark airport, where Continental has a high share of service and where there is limited availability of slots, making entry by other airlines particularly difficult. The transfer of slots and other assets at Newark to Southwest, a low cost carrier that currently has only limited service in the New York metropolitan area and no Newark service, resolves the department’s principal competition concerns and will likely significantly benefit consumers on overlap routes as well as on many other routes. The slot transfer is through a lease that permanently conveys to Southwest all of Continental’s rights in the assets, in compliance with FAA rules.

Although the airlines have secured DOJ’s blessing, the merger still faces a couple of hurdles.  First, (and most importantly) the merger must be approved by both companies’ shareholders.  Those meetings are tentatively set for month.

Second, Congress has indicated its displeasure about the merger, particularly in the face of the recent merger of Northwest and Delta.  In June, Rep. James Oberstar (D-Minn.), Chairman of the U.S. House Transportation and Infrastructure Committee expressed his belief that the merger would not be a good thing for American consumers: “You guys hate competition . . . you want to be the competitor that dominates the market.” The Washington Post reported that Oberstar vowed afterward that if the Justice Department approved the deal, he would demand re-regulation of the airline industry.  Re-regulation of the airlines has an increasing number of supporters, not only on the basis of competition, but also as a solution to chronic congestion at large airports.

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