United-Continental Merger: A Good Fit (If It Happens), but Cleveland Won't Like It

Last Updated May 3, 2010 6:00 AM EDT

It's hard to write about something that still isn't confirmed, but all signs point to the United (UAUA) and Continental (CAL) merger being announced in the next couple days, if not today. (Heck, by the time this post goes live, it could be done.) Is this a good idea? Well, yes and no.

In general, the industry mantra is to support consolidation. I tend to agree with this view, and United and Continental are a good fit. There is very little overlap in terms of direct competition, yet merging would allow the airlines to reduce capacity in a few ways. That's good news. How do you reduce capacity when there is no overlap? Easy. I see two places in particular that lend themselves well to capacity cuts.

I'm sorry to say it, Cleveland, but your days of hub-ness are likely over. Cleveland functions as Continental's only Midwest hub operation, but with Chicago in the picture, Cleveland becomes far less important. It will likely take its place around the size of a Cincinnati or Pittsburgh when things are all said and done; just having flights to cities where there is strong demand for local traffic.

The other likely target is going to be Washington/Dulles and Newark. Both are very large markets, but the consolidated airline should be able to eliminate some of the duplication. I imagine that some smaller cities in the northeast will be served from one instead of both. At the same time, European operations can shift around from one to the other. I have no doubt they'll both remain large European hubs, but they can move things around to make it work better.

Looking at this, it seems there will be less of a need for regional jets and the older 737-500s in the Continental fleet may leave sooner than later.

Assuming everything gets approved (that's the subject of another post), we'll undoubtedly see other tweaks as well, but these are the places I'd look for the biggest opportunities.