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US Airline Mergers Consolidate Industry


The first United Airlines flight following that carrier's merger with Continental arrives in Houston Friday from Chicago. The merger of the two airlines has created the world's biggest air carrier. At the same time, another U.S. airline, Dallas, Texas-based Southwest, is buying its smaller rival, Orlando, Florida-based Airtran Holdings, parent of Airtran Airways.

The mergers come at a time when airlines are struggling to make profits and trying to attract more business travelers. United Airlines is paying more than $3 billion in stock to purchase Continental in a bid to expand its reach around the world and offer both business travelers and vacation travelers more options.

The move will result in Continental disappearing as a separate business, with the headquarters being maintained in Chicago. The merger is a blow for Houston, where some high-paying executive jobs will be lost when Continental's headquarters closes. Company officials say most of the 3,000 some other jobs will be maintained here, however, because Houston will still serve as a hub for Latin America and the Southwest United States.

The other airline merger involves the purchase of Airtran by Southwest for $1.4 billion in cash. Southwest has more than three billion dollars in cash on hand as one of the most profitable airlines in the world. The purchase of Airtran will expand Southwest's reach domestically, allowing it access to important airports like Reagan National just ouside the nation capital of Washington, D.C. and LaGuardia in New York. Southwest will also gain access to Atlanta, one of the biggest airline hubs in the United States. The deal will also give Southwest some foreign exposure since Airtran also flies to Cancun, Mexico and to several locations in the Caribbean.

Southwest has gained a reputation for efficiency and no-frills flying as well as safety. The airline has never experienced a fatal crash.

Airtran, however, did have a plane go down in Miami in May, 1996, killing 105 passengers and the five crew members.

While Southwest's low-cost flights may bring down fares in some of the cities where it will now have access, particularly Atlanta, industry analysts believe the mergers overall will not be good for passengers because less competition will result in higher fares.

The airline that will likely feel the most pressure from the deals is American, which, like Southwest, is based in Dallas. American was the largest airline in the world until the merger between Northwest and Delta in 2008. American airlines executives have argued that the company's international reach will help it keep business travelers, but the extensive routes that will now be available through the United-Continental merger may lure some business travelers away. But analysts say American has limited options now even if it did favor a merger, since all the large players in the industry have already merged with other carriers.

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