NEW YORK (Reuters) - United Airlines won U.S. antitrust approval to buy Continental Airlines (CAL.N) on Friday, throwing a sweetener to rival Southwest Airlines (LUV.N) to allow the creation of the world’s largest carrier.
United and Continental struck a deal to give Southwest some take-off and landing rights at a key airport hub, Newark Liberty International Airport near New York City, to get the go-ahead from the U.S. Justice Department — a decision that came sooner than industry insiders had expected.
Despite the swift antitrust review, integrating the carriers is much more complex and time-consuming, and consumers are not likely to see any major changes immediately.
Continental and UAL scheduled special stockholder meetings on September 17 for approval of the merger and expect the deal to close by October 1. The deal won clearance from the European Commission in July.
United parent UAL Corp UAUA.O had announced in May that it would buy Continental for $3.17 billion in an all-stock deal. The combined carrier would be known as United Airlines and be based in Chicago, with Continental Chief Executive Jeff Smisek as CEO.
The deal is the first major U.S. airline merger since Delta Air Lines (DAL.N) acquired Northwest Airlines in 2008 and comes after the airline industry has been hammered by a surge in oil prices followed by a deep recession.
The combined carrier would attract more business traffic because the company would fly to 370 destinations, the airlines have said. The merger is expected to produce between $1 billion to $1.2 billion in annual revenue and cost benefits by 2013.
The Justice Department’s decision came less than two hours after the two merging airlines announced they would give up 36 slots at Newark Liberty to Southwest.
The low-cost airline will have the right to operate up to 18 arrivals and 18 departures a day at the New Jersey airport. Some of the flights will start in March 2011 and a full schedule is expected by June 2011.
Experts had expected the airlines would have to offer some concessions to antitrust enforcers. The Justice Department said the transfer of slots to Southwest resolved principal competition concerns.
“I guess 18 slot pairs was enough to get the deal done, which was a remarkably small price,” said airline consultant Robert Mann at RW Mann & Co.
“This keeps them on track to move at least as rapidly if not more rapidly than they anticipated toward close,” Mann said.
The transfer of slots to Southwest will expand its presence in the increasingly competitive New York market, where AMR Corp’s AMR.N American Airlines and US Airways LCC.N also have a presence.
Southwest already operates some flights out of New York’s LaGuardia Airport and Long Island Islip Macarthur Airport.
Finalizing the deal puts new pressure on American Airlines to possibly do a deal of its own or to at least drive down its labor and other costs. American is a former No. 1 that would be in third place once the United and Continental deal is closed.
Southwest has said it was looking to lure more business travelers and eyeing international routes.
“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.”
Continental and United currently operate 442 daily flights in and out of Newark’s airport.
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, Richard Chang, Gary Hill