By Roger Yu, USA Today. In a recent speech, Jeff Smisek, CEO of United Continental Holdings, likened merging two large airlines to a total house remodeling.
“We are not doing painting and spackling here,” he told a group of business executives in Chicago.
Like a large construction project, the integration of United and Continental airlines is having its share of drama: meshing disparate cultures; the issue of new union representation contracts running behind schedule; some disgruntled pilots; customer confusion; and a long to-do list that includes minute details such as the proper verbiage when warning flight attendants to prepare for takeoff.
Executives at United Continental maintain that crucial operational issues have been addressed and that the merger is proceeding without major glitches.
“From my perspective, things are on track,” says Jim Compton, United Continental’s chief revenue officer. “Merging two airlines is a long process and complicated. We have a lot of work ahead of us.”
United and Continental announced their $3 billion merger in May 2010, creating the world’s largest airline to be branded “United.” They said they would generate up to $1.2 billion from cost savings and new revenue from their combined flight networks. The combined airlines would generate annual revenue of about $29 billion (based on 2009 financial results), they said. Shareholders approved the deal in September 2010.
For now, the two carriers are flying under their own banners, and the company doesn’t expect to finish merging the two reservation systems until the end of March. But some early integration tasks, such as painting planes and replacing signs, are proceeding quickly. Other crucial customer service issues — aligning frequent-flier programs, recoding kiosk software, agreeing on a reservation system standard — have made progress, too, Compton says.
United Continental also has begun to rejigger the combined fleets by shifting some planes to better matching routes. For example, a United Boeing 777 plane, with both first- and business-class cabins, has replaced the business-class-only 757 jet used by Continental from Newark to Brussels, considered a premium market.
Mark Ozenick, an aviation consultant at SSA & Co., says dealing with mechanical and hardware issues is easier than combining and transforming the culture. “Where mergers fail is when they don’t humanize the process and are not integrating the culture,” he says. “Continental has a reputation for being very customer-centric. United not so much. At least that’s the perception in the marketplace.”
Potentially thorny labor issues, including settling on new union contracts and combining seniority lists, remain the largest obstacle to completing integration, says Robert Mann, an airline analyst at R.W. Mann & Co.
United pilots have also complained that training for new flight procedures is inadequate and asked a federal judge for an injunction to delay the implementation. The request was denied.
Protracted labor problems could worsen customer service, Mann says. “At the end of the day, it’s still a service industry,” he says.
Compton, however, says that the labor tussles will not affect safety. “They have never been a safety issue,” he says.
Here are updates from several key areas of integration:
•Branding. The Continental brand remains prominent at gates and agent desks at its hub airports: Cleveland, Newark and Houston Intercontinental. At major United hubs, such as Chicago O’Hare and Denver, United’s signs are bolder and larger, while Continental signs have been minimized. All Continental signs are scheduled to disappear by the end of next year.
About 40% of the combined fleet has been painted with the new United name and Continental’s globe-like logo and blue color scheme.
•Ticketing. Both websites are active, and you can buy one carrier’s ticket on the other’s site. Phone agents from one airline can’t serve the other’s customers, but they now can transfer calls for premium customers.
Moving to one reservation system — they’re consolidating to the old Continental system — is estimated to be completed by the first quarter of 2012. But airport kiosks already have been reprogrammed to process both carriers’ reservations.
Continental and United agent desks are now next to each other at about 50 airports.
•Airport service. Most of the airlines’ buy-in travel options haven’t been combined. But with Continental offering fewer options, expect to see more of United’s practices, such as faster check-in for a fee, emerge, United says.
The carriers’ names for their airport lounges — Continental’s Presidents Club and United’s Red Carpet Club — have been retired and rebranded as United Club.
In its economy cabin, United boards its window passengers first, followed by those in the middle seat and aisle. Continental loads back-to-front. The combined carrier will switch to United’s procedure next spring.
•Frequent-flier programs. United and Continental now run separate frequent-flier programs. But Continental’s OnePass program will be closed at the end of the year, and its members will be automatically enrolled in the new combined program, to be branded MileagePlus.
It will offer four levels of elite-member status — 25,000, 50,000, 75,000 and 100,000 qualifying miles — that can be used for upgrades, faster boarding, waived bag-check fees and the Economy Plus seating that has more legroom. Each airline currently offers only three levels.
The new MileagePlus miles will expire in 18 months if the account is inactive, whereas Continental’s miles now don’t expire.
•Air service. Continental planes will continue to fly as Continental until the reservation systems are merged. But the company plans to retain Continental’s two-cabin structure for at least several years. United’s Economy Plus seating will be introduced to all 340 Continental’s planes. Continental’s first two planes with Economy Plus seats will start flying this month.
Otherwise, the fleets will largely be left alone. But some planes will be shifted to other markets. Some profitable routes — flights to London or Asia, for instance — will get the biggest, best planes.
Markets with less business travel demand may not need United’s first-class cabin and could be served instead by Continental planes that have just economy and business cabins.
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