Why a Continental/United merger would be awful for the consumer…

Well darn, I got beaten to the punch. I was about to write a post on this subject to be ahead of the curve but just as I sat down to start writing the news hit the wire about DL/NW and I immediately got sidetracked. That’s right around the same time that I get over a handful of IM’s of people thinking they’re breaking the news to me and ready to discuss it, along with a few emails of people that think they’re ahead of the curve… heh. In the world of geeks it doesn’t take very long for news to spread!

First of all I think it goes without saying that this Delta/Northwest merger approval frees up Continental to pursue any merger they’d like. Now they can redeem the “Golden Share” (doesn’t this sound an awful lot like Willie Wonka?!?!) for $100 and head over to match.com (airline edition) and take a compatibility test. Of course it seems like they’ve already taken it and decided United is the one they love (or is it the other way around with UA being the one looking for a partner but being too shy to ask for a date?),  so let me try my best to explain why I think this is awful for the consumer, since so many people seem to think this is great news, since CO and UA are both strong carriers, thinking we’ll get the best of both worlds. Here’s why that’s not possible:

DL/NW are very compatible– nearly identical frequent flyer programs, their route networks will work great together with DL’s focus on Europe and South America and NW’s focus on Asia, making them a truly global carrier, not to mention their similar products. They both only have two cabins on all mainline flights, and they’re in the same alliance so overall most changes will be relatively minor, in my opinion, at least in the grand scheme of things. The same can’t be said for CO and UA.

CO and UA are, in my opinion, two of the best US carriers, but in opposite ways. They complement each other as far as their route network goes with Continental having an amazing network in Europe and South America (as well as India, a huge region that’s totally missing in UA’s network) and United having a focus in Asia and Australia, so they’ll truly have an impressive network if they combine. Unfortunately that’s where the good stuff ends.

I view the strengths of Continental to be their great premium product, their consistently good service, and their reasonable premium fares. I think United’s strengths are the exact opposite, namely their amazing mileage program, Economy Plus (add that to United already having three cabins on longhaul international flights!), their incredibly generous upgrade program whereby you can get plenty of upgrades on low fares when flying internationally as a top tier customer, and their all around good “cuddling” attitude towards elites. It’s funny, if I were to highlight the weaknesses of each they’d be the opposite of the strengths of the others and then more.

So most are saying at this point “Lucky, that sound good, they’ll create the best airline out there, combining the best of both worlds, right?” Well, I wish they could, but let’s step back for a second and think about this. One of the reasons that CO is so successful with their premium cabins is that they don’t have a lot of upgrades, at least on international flights and trascons. On average CO has less than one upgrade on a transcon flight…. that’s right, LESS than one. While we don’t have any facts for United, I’d guess it’s substantially over 50% upgrades on average. So why is this? Well for one CO has a superior product without a doubt, although I doubt that’s why people actually pay for them. Only a fool would buy an F product over a Y product because the salad is slightly bigger or they have more hot fudge on their sundaes, in my opinion. What they do have, though, and I’m guessing this is the major reason they fill up in F, is very reasonable F fares.

So how can you reconcile affordable premium fares and upgrades? Well, you really can’t without making the whole plane F! Either they can make the F cabins more expensive, make the product worse and getting rid of reasonablepremium fares, or they can keep it the way CO does it, and say goodbye to upgrades on the longer flights, at least for most of us.

The problem here, again, is that CO and UA flyers have totally different expectations. At CO you almost always get what you pay for, be it a coach fare or a premium fare. United, on the other hand, you either get less than what you pay for (Economy “Minus” on a 747, for example), or you get WAY more than what you paid for with a nice international upgrade, transcon upgrade, etc. That means the set of loyal customers for each company have totally different expectations of their airlines, what they value, etc. Combining that to make most happy will be nothing short of a miracle, in my opinion.

Another issue: UA has three cabins (not counting Economy Plus) on longhaul international flights while CO has two. So which way should they go? That depends on their overall plan, but on one hand you’re pissing off the passengers that like paying for C and upgrading to a “Suite” in F where they can get real sleep, still giving UA a profit at $8,000/pop flights, or you can just have a good C product and say goodbye to F. Regardless of which way you go people will be infuriated. Man, I’m betting UA’s starting to regret starting their reconfigurations!

The one shining light is that I’m guessing a combined airline would belong to the Star Alliance, and I’m guessing they won’t restrict awards even more than United already does with Starnet filtering, so that’s one thing which I’m not too scared about, fortunately. While CO’s FF program is commonly referred to as “NonePass,” we have to remember the fact that they’re in Skyteam, which is relatively stingy with awards, partly to blame for their bad inventory.

I could go on and on but my point is this: a UA/CO merger is nothing to look forward to as a consumer. I’m guessing it will happen and in the long run it’s in the best interest of the airline industry, but we’ll definitely see some price hikes and dilution of FF benefits. Of course it’s all premature at this point, but it’s clear that consolidation will happen, but I’m really dreading the thought of this particular one.

Just my two cents for the evening.:)

PS: PLEASE keep Channel 9!

PPS: If negotiations do start to happen soon I’m betting we’ll have the Summer of Hell all over again on United…

Comments

  1. Hey Lucky —

    As a business traveler, there’s one thing I’m excited about that obviously you wouldn’t be. Industry consolidation = less price-based competition = more service and mileage-based competition.

    I know you and have disagreed on this point before, but I _strongly_ believe that just as we saw during the regulated-80s and post-9/11 era, the increased price inflexibility will drive the remaining major carriers to compete on things that will directly benefit us.

    Yes, prices will go up. With that, margins and the potential for some really great, innovated passenger perks becomes a reality.

  2. Good points xj, but a few things to keep in mind. “Business travelers” is a very broad term, and includes people that travel for work on deeply discounted coach tickets and also includes people that travel full fare first. I’m betting service will improve for those that fly paid first, although not by much. One byproduct of these mergers is much less competition, and while it could mean better yields for the airlines it also gives them less of an incentive to provide a better product since you’re more likely to fly them regardless of what services they provide, no? Imagine if we just had three legacies. There would be relatively little overlap and people would choose their carrier based on convenience, in my book.

    However, the business traveler that this will NOT help, in my opinion, are those that upgrade, maybe other than full fare Y passengers. Most business travelers aren’t different than me in the sense that their companies don’t pay for full fare so they’re most stuck upgrading. The upgrade percentages will definitely get much worse, in my book, so while you might have one more tomatoe on your salad in F I’m not sure what else should realistically be expected. What kind of improved services are you expecting due to a potential merger, and for what types of passengers?

  3. Actually, if we had just three legacies, I imagine there would be tremendous overlap. Each one with a different route network out of each station, but lots of redundancy.

    Example, my weekly commute SFO-DAY. On UA, I go SFO-DEN-DAY or SFO-ORD-DAY. Between those two routings, there are around 7 total itins on UA that I could book on any one day to get me there.

    On NGA, I can go SFO-MSP-DAY, SFO-DTW-DAY, SFO-CVG-DAY, SFO-SLC-DAY, SFO-ATL-DAY, SFO-MEM-DAY. That’s a total of 6 routings, with a few of those having a couple acceptable itins. With some consolidation to the route network, I don’t have any trouble believing that NGA will be able to get me out of a UA hub and where I need to go with approximately the same convenience as UA could.

    (None of this holds true for hub-to-hub flights.)

    Not sure what I’m expecting, just trying to remember that it was the days of a regulated airline industry that cooked up such perks as airline lounges, mileage programs, ground transfers, meal allowances and more.

  4. Well, I am not sure if UA is really regretting that they started with their reconfiguration. They haven’t really made a lot of progress in the — what, five months? — since they started.

    I bet they’ll go two class, and I hope they’ll keep E+. I would never pay for C and upgrade to F anyway, but I often enough end up in E+ for that to really matter to me as a differentiator.

  5. If this looks like it’s inevitable, I’m burning my accumulated RDMs and seeing how the 2 mergers shake out as far as SFO being my home port. I fly predominantly to Japan and Germany (for non-MR pleasure that is) and will never (on my anticipated income trajectory anyway) pay for C or F. It’ll be interesting. Of course, with oil > $100, it’s scary enough.

  6. Is it time us UA elites to be signing up for a CO credit card? 20,000 Onepass, when converted to UA MP miles with merger activity, seems a great deal for the $60 annual fee.

    Back on topic: good post, lucky, and I agree with your sentiment. Less competition is never good for the consumer, and the present merger wave, coupled with the bankruptcy and/or liquidation of several smaller carriers, threatens to severely harm the U.S. airline consumer in terms of both price and choice.

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