No short-term impact on domestic airlines from UA, Continental merger

10:45, May 05, 2010      

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The marriage between United and Continental Airlines, creating the world's largest carrier, is unlikely to have a major impact on Chinese carriers in the short term, although it will reshape the global aviation industry and inspire more consolidation, analysts said.

The two airlines announced on Monday that they have agreed to merge in a stock swap valued at more than $3 billion, reviving a deal that fell apart two years ago. The deal gives birth to the world's largest carrier with a 21 percent share of the US aviation market and 7 percent of the global market.

The deal still needs approval from shareholders and antitrust regulators and is expected to close in the fourth quarter.

"It will take some time for the two to merge and create synergy in their China businesses. No merger will be completed in the blink of an eye, so in the short term there is no big threat to Chinese airlines that are flying to the United States," said Li Lei, an aviation analyst with Citic China Securities.

Luo Zhuping, board secretary with China Eastern Airlines Co Ltd, said the merger would not have an immediate impact on Chinese airlines' international business.

"Chinese airliners are also seeking various mergers and acquisition opportunities and joining international aviation alliances to enhance their competitiveness," Luo said.

"Flight networks and efficiencies have become the two deciding factors for airlines to win more market share. Therefore, mergers and restructuring will be a trend in the aviation industry," Luo said.

Last year, China Eastern completed a merger and restructuring with Shanghai Airlines in 2009. The airline recently announced plans to join the SkyTeam alliance after being courted by the world's three airline alliances for several years.

But analysts said the two US carriers would benefit from the merger and increase their market share in China over the long term.

United, Chicago headquartered, is currently the largest US carrier on Sino-US air routes in terms of capacity. It flies nonstop daily from Beijing to Chicago, San Francisco and Washington DC respectively and from Shanghai to Chicago and San Francisco. Continental operates daily direct flights from New York to Beijing and Shanghai respectively.

"Since entering China in 1986, United has more than two decades of operational experience in China. In addition, it's the first company to launch direct flights from China to the US. I think through the merger, United will solidify its leadership in China's aviation market," said Yao Jun, an aviation analyst with China Merchants Securities.

According to the announcement on Monday, the new parent company will be named United Continental Holdings Inc. The airline will operate under the United name, and aircraft will have the Continental logo and colors. The combined airline will have revenue of about $29 billion and $7.4 billion in unrestricted cash.

But Li said the new mega airline still has to get approval from the Chinese aviation authorities if it wants to increase its capacity to China.

Texas-based American Airlines cancelled its inaugural direct flight from Chicago to Beijing at the end of last month due to a disagreement with Chinese aviation authorities over take-off and landing times in Beijing. Delta Air Lines, which is scheduled to launch flights from Seattle to Beijing on June 4, is conducting similar negotiations with the Chinese authorities over slot times.

Source:China Daily


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