NEW YORK United Airlines won U.S. antitrust approval to buy Continental Airlines (CAL.N) after the carriers struck a deal to give up some take-off and landing rights at a key airport hub to Southwest Airlines (LUV.N).
The approval from the U.S. Justice Department paves the way for United and Continental to merge, creating the world's largest airline.
The government review was swifter than industry insiders had projected, and some concession to antitrust enforcers had been expected.
The Justice Department's decision comes less than two hours after the airlines announced that low-cost airline Southwest would take over 36 slots at the Newark Liberty International Airport in New Jersey.
The Justice Department said the transfer of slots to Southwest, which operates no flights out of Newark, resolves the department's principal competition concerns.
In May, United parent UAL Corp UAUA.O said it would buy Continental for $3.17 billion in an all-stock deal. The combined carrier would be known as United Airlines and based in Chicago.
The deal is the first major U.S. airline merger since Delta Air Lines (DAL.N) acquired Northwest Airlines in 2008.
Continental Chief Executive Jeff Smisek is set to be the head of the combined carrier. UAL CEO Glenn Tilton, a long-time proponent of consolidation, will be nonexecutive chairman.
"The DOJ's decision permits us to clear one of the last regulatory hurdles to closing our merger," Smisek said in a statement after the approval.
A BOOST FOR SOUTHWEST
The deal gives Southwest further access to the New York market. The airline operates some flights out of New York's LaGuardia Airport and Long Island Islip Macarthur Airport.
Last month, Southwest said it was looking to lure more business travelers and was eyeing international routes.
Continental and United operate 442 daily roundtrip flights into and out of Newark Liberty International Airport. United has 33 slots in Newark.
"Southwest has been trying in a variety of different ways to get more access to both New York and Washington," said Bob McAdoo, a research analyst with Avondale Partners. "This gives them meaningful access to the New York area through Newark."
Southwest will have the right to operate up to 18 daily roundtrip flights with some of flights starting in March 2011. A full schedule is expected by June 2011.
Houston-based Continental has 50.6 percent of the market share at Newark, according to traffic data culled by the Bureau of Transportation Statistics from June 2009 to May 2010.
Market share is based on the number of arriving as well as departing passengers.
(Additional reporting by Kyle Peterson in Chicago, Karen Jacobs in Atlanta and Jeremy Pelofsky and John Crawley in Washington DC; Editing by Gunna Dickson and Richard Chang)