- Associated Press - Sunday, September 19, 2010

The biggest airline in the world will have the United name, Continental’s globe logo and potentially far-reaching effects on air travel.

Shareholders who on Friday approved combining the two companies hope the new airline attracts more top-dollar corporate travelers with its larger network while reducing costs. Some industry watchers expect the deal to lead to higher fares, but United and Continental say competition from low-cost airlines is sufficient to keep prices from rising.

The vote for the deal topped 98 percent at both companies, which expect the $3 billion stock swap to close in the next two weeks after loose ends are tied up. Regulators in the U.S. and Europe already have signaled approval.

With the vote taken, the real work begins. Passengers won’t notice changes immediately, but behind the scenes the airlines will be combining two groups of highly unionized workers, merging reservations systems and repainting the planes. The companies expect it will be at least a year before federal authorities approve their request to fly as one airline.

The UAL acquisition of Continental will combine United’s strength in the Midwest, the West Coast and across the Pacific with Continental’s presence in Texas, the East Coast and routes to Europe and Latin America. Measured by traffic - the number of miles flown by paying customers - the new United will leapfrog Delta, Air France-KLM and American Airlines to become the world’s biggest airline.

Shareholders of United parent UAL Corp. will own 55 percent of the new company, to be called United Continental Holdings Inc. and based in United’s hometown of Chicago. It will be led by Continental Airlines Inc. CEO Jeff Smisek.

Mr. Smisek hinted Friday at layoffs, saying the move will create overlapping jobs, but he did not give any numbers.

United and Continental overlap on few routes, but Rick Seaney, CEO of FareCompare.com, said he still expects the deal to affect how passengers fly and how much they pay.

“Losing a major competitor is likely to make prices rise, all things equal on the economy and fuel prices,” he said.

United and Continental say they compete with low-cost carriers on about three-fourths of their U.S. routes, which will help keep down fares.

Kevin Mitchell, president of the Business Travel Coalition, said most of his corporate clients with whom he has talked assume prices will rise. But he said many think fare increases will be offset by new or better discounts for big travel customers.

Several dozen passengers have sued over the United-Continental combination, claiming it will lead to fewer flights and higher fares. The plaintiffs claim the new airline would have a monopoly over nonstop flights on several routes within the U.S.

The deal has caused concern in Cleveland, which is Continental’s smallest hub and overlaps with United’s big hub in Chicago. This week, the airlines agreed to keep at least 90 percent of their Cleveland flights for two years after they merge, but they could pull out if they’re losing money there. They could opt out sooner and pay damages of up to $20 million to the state attorney general’s office.

Airport consultant Mike Boyd said he thinks the combined airline will try to keep the Cleveland hub operating, but may not succeed.

“Cleveland has always been on the cusp - always,” Mr. Boyd said, “and the merger doesn’t change that.”

Other Continental and United hubs are considered more secure, although local officials worry that the eventual departure of Continental’s Houston headquarters will cost jobs in back-office functions such as accounting and human resources.

UAL and Continental together lost nearly $7 billion in 2008 and 2009 because of high fuel costs and the recession. Both returned to profitability last quarter, as fees and higher fares boosted revenue.

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