How Synergy Can Actually Work: Continental Puts United's Airplanes to Good Use in Peru

Last Updated Nov 29, 2010 11:48 AM EST

One of the reasons we often hear for two companies merging is the development of "synergies." I cringe every time I hear the word, but sometimes, the two companies can come together to do something that they couldn't do alone -- even if it's often only in isolated instances rather than on the grand scale CEOs like to promise. For airlines, the combination of two different fleets and route maps can create opportunities, as Continental and United (UAL) are finding in Lima, Peru.

Continental has spent several years developing Houston as a large base for Latin American operations. United, however, which lacks a hub in the southern U.S., has failed to gain a foothold there. So while United fails to even serve a big capital like Lima, it's an important dot on Continental's route map.

There's only one problem: Continental doesn't have the ideal airplane to serve the route, so it's currently forced to fly a 757 with 16 flat bed seats up front and 159 coach in the back.

What's wrong with that airplane? Well, since it's only a 6 hour flight, there isn't a ton of demand for the flat bed seats up front. But the route is too long to serve with one of Continental's 737s, so the airline didn't have much a choice. Meanwhile, my guess is that there's more demand for coach seats than Continental can't fill with its current fleet. Now, enter United.

United has a different problem. It has a lot of big airplanes but many are configured for domestic use. Several of those are for Hawai'i flying, but you'll also find big 767s flying routes like San Francisco to Denver or Los Angeles to Chicago. There's not really a need for that, but the airplanes aren't currently suited to do anything else.

Look at United's fleet of domestic 767s, for example. There are 34 regular domestic first class seats along with 210 seats back in coach. Yes, that means there are more premium seats, but they take up a lot less real estate. They're just a little wider with a couple inches more legroom than a coach seat. But there are a lot more coach seats and that's a good thing.

Before the merger, United didn't have a better place to fly these airplanes. They couldn't make it to Asia, and United's South American presence was weak enough that there wasn't enough demand. For the European routes that could support this, they needed upgraded international versions to serve the market

Now, these airplanes can be used to fly to Lima where Continental needed a better airplane than it had in its arsenal. At the same time, it allows United to put its 767s to better use as well. This is the kind of value that can be created, albeit on a small scale, in a merger. When you add up all the possible scheduling changes, the impact can be tremendous.


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