As Two Airlines Merge, A Tale of Two Cities

It’s a new era of airline consolidation. On Monday, Southwest Airlines announced plans to buy regional rival AirTran Holdings. The mega-merger between Continental and United becomes official on Friday. The new United becomes the country’s largest carrier and will call Chicago home. As our Changing Gears team chronicles the Midwest’s economy, Dan Bobkoff in Cleveland, and Niala Boodhoo in Chicago present a tale of two cities.

At Chicago O’Hare International Airport, Terminal One is full of United Airlines passengers rushing to their flights. But stop and ask people how they’re feeling about the upcoming merger with Continental Airlines, and the response from Libertyville, Ill., resident Roger Janczek is typical.

“I think it will be a good thing because of the routes Continental has that United doesn’t,” said Janczek, who flies United regularly. “So it really opens things up a little bit and make travelling a life easier.”

Janczek said he’s also happy the new United is keeping its headquarters in Chicago. “It’s good for O’Hare and the city.”

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Here’s an Illinois Factsheet PDF provided by the companies.

About 350 miles away, the tale in Cleveland isn’t as happy. Continental is the dominant carrier at Cleveland Hopkins International Airport. It’s a smaller hub for the airline, and with Cleveland in between Chicago and Newark, another big Continental hub, many are nervous that the merger will mean fewer flights for them.

They include Cleveland lawyer Rob Weibel. His firm recently opened an office in Chicago, where he flies about once a week. He said he worries that flights will become so expensive he may have to start driving.

“You can work on the plane,” said Weibel. “You can’t work very well while you’re driving.”

Continental has had a hub in Cleveland for the past two decades – it actually expanded service here when United cut its flights. But the airline’s service there is only one third what United has at O’Hare. If history is any guide, the fear is United will cut back at Cleveland just as Delta did in Cincinnati when it merged with Northwest.

“Cincinnati, I’d be surprised if they have 20 percent of the flights they had five years ago,” said Bob Harrell, a travel consultant.

Ohio officials such as the attorney general, Richard Cordray are trying to avoid a similar fate in Cleveland. At a news conference recently, Cordray spelled out what is at stake.

“Cleveland benefits from thousands of jobs and millions of dollars in revenue,” he said. “A merger could threaten that role, putting Cleveland at risk for a significant economic loss.”

The attorney general got United to promise it would keep nearly all its flights for the first two years. The airline can only cut service after that if Cleveland’s revenue falls dramatically. It faces a fine and a lawsuit if it violates the agreement.

Cordray said he was “confident” this resolution was the “best possible outcome” for Cleveland and the state of Ohio.

The problem is that many experts think this best possible outcome allows United to make the kinds of business decisions it would anyway. And, since it will take more than a year for Continental and United to become one, Cleveland’s fate might not be decided until the five year agreement is almost over.

Here’s an Ohio Factsheet PDF provided by the companies.

In this tale of two cities, Chicago’s future is a lot brighter, said industry consultant Bob Mann.

“In terms of prestige, being in a headquarters airline city has its benefits,” said Mann, who is based in New York.

Thomas Lys, a professor at Northwestern University’s Kellogg School of Business, said the combined airlines give the city prestigue.

“There’s always the success factor,” said Lys, who said having the United headquarters in the Chicago Loop, as well as offices in the former Sears Tower, now called the Willis Tower, may also help bring other companies to Chicago. “Now you have Boeing, you have United, it certainly is attention grabbing.”

What could holding back the airline at O’Hare is the airport’s chronic congestion and delays. That’s why Chicago is spending billions of dollar to expand the airport and add runways. If the city succeeds, it could make it easier for carriers like United to operate there.

That worries many in Cleveland, who see the Chicago focus as another reason why United could get rid of many of our flights at Hopkins.

Rob Weibel, the Cleveland lawyer who works in Chicago, specializes in mergers and acquisitions. When asked if he took the new United at its word about keeping service in Cleveland, his answer was simple:
“No, I don’t.”

Weibel knows that this tale of two cities, like many, comes down to money.

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