Is United-Continental the Future of Airlines?

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A merger between United Airlines and Continental is set to create the world's largest airline, but at least part of the deal's purpose is allowing the airlines to cut capacity -- seats and flights -- in order to drive up prices:

"In terms of a global scale, the merger of United and Continental is a positive," said Denny Lewis, owner of WorldTravelService, a corporate and retail travel agency based in the District. "It gives the combined entity stronger reach within the United States, Europe, Asia, Latin America. Locally, it certainly will benefit the consumers here. Will it result in lower prices? I have yet to see any merger where the new entity results in lower fares in the markets they dominate."

Nonetheless, with both airlines losing money by the hundreds of millions per year, it's hard to see the Justice Department blocking the move for the sake of anti-trust concerns. Labor contracts are also unsettled, although once again it seems like the relevant unions are amenable. It's interesting to see how the large legacy carriers are competing with newer, cheaper airlines like Southwest and Jet Blue in a time when no one seems to have created a business model for a successful airline. One has to ask, though, whether or not all of these different approaches will become irrelevant in a world where the rising price of fossil fuels seem to be a medium-term inevitability.

Reading about the deal yesterday, I was also surprised to note that the new airline will control only 21 percent of domestic capacity and just 7 percent of the world's market share. While I'm not displeased by the fact that the biggest airline's reach isn't much larger than its competitors, it is surprising that no airline has been able to exert real domination across global flight markets -- probably a legacy of traditionally strict regulation on the sector.

-- Tim Fernholz

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