Region will see mergers, airline boss predicts

PUBLISHED : Friday, 29 October, 2010, 12:00am
UPDATED : Friday, 29 October, 2010, 12:00am

More mergers and acquisitions among airlines in the Asia-Pacific region are in the offing as a result of the formation of United Continental Holdings, says its chairman Glen Tilton.

United Continental Holdings, formed as a result of the merger of its subsidiaries United Airlines and Continental Airlines, is the largest carrier in the world with a fleet of around 700 aircraft.

According to Tilton, the new airline will change the competitive landscape not only in the United States and the transatlantic market but also on transpacific routes, which are major sources of income for Asian carriers such as Cathay Pacific Airways and Singapore Airlines.

'Our worldwide footprint, together with our partnership with Star Alliance, will force our competitors in the Asia-Pacific region to confront the question: what do we offer the customer now?' Tilton said.

As a result of the merger, the new airline has direct access to the Asia-New York route for the first time and is the largest US carrier connecting the US with China, which will help it to draw more corporate clients, Tilton said. The combined fleet also enables the new company to have more flexibility to swap aircraft between networks and optimise plane usage.

'I believed from day one that consolidation is the way out for the industry,' said Tilton. 'Although the process is hard, it's not harder than bankruptcy.'

The negotiations for the merger, which began two and a half years ago, did not take off initially as Continental walked away from talks in light of the global economic crisis and an abrupt rise in oil prices.

The talks, which dramatically concluded in just a few weeks in May, were opened again in the wake of a leak of merger discussions between US Airlines and United Airlines, as Continental Airlines did not want to be sidelined.

'My experience in the industry is that we really do not know what we are heading to in the event of incidents such as volcanic ash, Sars or Lehman Brothers,' Tilton said. 'We have to accept the next unexpected and need to be financially resilient to deal with it.'

Consolidation in the airline industry is not new to the region. Cathay and Dragonair merged in 2006, China Eastern Airlines and Shanghai Airlines came together last year, as did Shenzhen Airlines and Air China. Because of the advantages of scale and cost efficiency, Tilton believes, consolidation will continue to be the predominant theme in Asia-Pacific and elsewhere.

Besides consolidation, airlines could also leverage their partnerships and alliances to increase their competitive edge, he said. In addition to an increase in revenues through code sharing, more could be done on the cost-saving side through collaborations between alliance members. He cited collective procurement of aircraft equipment and jet fuel and sharing of aircraft among members.