Tuesday, August 31st, 2010

Determined not to allow this merger to harm competition and lead to a reduction in the availability of cheap airplane tickets and cheap vacation packages, the Department of Justice (DOJ) refused to approve the merger of United and Continental until they agreed to lease takeoff and landing slots at Newark Airport to a competitor.

After completing an exhaustive investigation of the implications of the proposed merger, DOJ concluded that United and Continental’s networks were largely complementary, meaning that few of their routes overlap. This in turn suggests that airline competition will not be harmed by the merger in any of the complementary markets.

Nevertheless, DOJ determined that Continental enjoyed too high a share of service at Newark Airport which has a limited availability of slots. Airlines wanting to start flying out of Newark have been unable to do so because of this.

By making approval of the merger conditional on Continental transferring slots and other assets to a competitor that currently offers only limited service in the New York metropolitan area and no Newark service, the DOJ believes that competition in New York will be enhanced.

The slot transfer is through a lease that permanently conveys Continental’s rights to these assets, in compliance with Federal Aviation Administration rules.

The pending $3.2 billion merger will be put up for a shareholder vote next month and is expected to close on October 1st, 2010. The combined company will fly under United’s name and will be larger than Delta, which became the nation’s biggest airline in 2008 when it merged with Northwest Airlines.
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