Jeff Smisek, Continental Airlines (5Q Interview)

United Airlines and Continental Airlines on 3 May announced a definitive mergeragreement, which they expect to close by year-end. United CEO Glenn Tilton and Continental CEO Jeff Smisek, who respectively would become non-executive chairman and CEO of the merged entity, during a briefing for analysts and news media fielded questions on growth plans, competition, corporate sales and labor integration. Smisek's comments are excerpted here.

In the past, you had mentioned that if you saw Continental--even with a joint venture and codeshare relationship domestically with United--losing corporate market share, that you would reconsider [a merger]. Was that the motivation here, a better platform to compete against Delta?

In 2008, when we had these earlier [Continental-United merger] discussions, the economy was at the cusp of the greatest recession since the global depression. Fuel prices were screaming to unprecedented highs. The capital markets were distressed and had limited access for airlines. The liquidity positions of both carriers were a bit stressed, as well. Fast-forward to today, where we have the economy improving, we have business travel returning and we have fuel prices that--although high--are manageable. We have access to the capital markets, and our liquidity is better than it has been in many years. The stars are aligned for what is a great strategic move. I have been keeping my eye on Delta; they are a serious competitor of ours in New York and Latin America. They are claiming to have significant synergy results from their combination [with Northwest Airlines]. But what happened here is very simple. United is the best possible partner for Continental. The cyclicality and fragility of this industry has got to stop.

Are there any labor contingencies, technical conditions or milestones that you need to achieve in order to close the transaction, or do you have everything in place and it's just a function of antitrust from here?

We are going to be talking to all of our labor groups, negotiating the traditional fence agreements, resolving representation issues, negotiating joint collective bargaining agreements and seniority integration. Our pilots and United's pilots have done a lot of work over the past couple of years. They have negotiated a process agreement for integrating their seniority. I expect our labor negotiations will be no different than the labor negotiations we have had at Continental historically. We have consistently reached agreements that are fair to the company and fair to the co-workers. We are committed to getting contracts done in a timely way. If your question is a technical one--is there a condition to closing related to labor?--absolutely not. The merger agreement is fairly traditional and straightforward, with ordinary representations and warranties and ordinary covenants and conditions to closing. The deal is built to close.

In the U.S. domestic market, you'd by far be the dominant airline. Is that not going to be a major concern for the regulators?

Absolutely not a major concern. Antitrust analysis is done on relevant markets, not on such an aggregate statistic as market share across a geography the size of the United States. The U.S. Department of Justice does a market-by-market analysis. We are highly confident that there are no material antitrust concerns from this transaction. This transaction will close. There are no two carriers that you could put together in a more complementary way than United and Continental airlines.

Are you going to be able to charge more for airfares? Theoretically, you'd be able to charge more because you are basically reducing competition in the industry.

I disagree with that totally. We are not reducing competition. We are adding competition. This is a global industry, we are a global carrier, we compete globally. We are not reducing competition at all here. What we are doing is adding great utility; this is a huge consumer benefit, and we are going to be responsive to market demand. That means if market demand increases, we are going to add capacity appropriately and price our product appropriately. If demand decreases, we will take out capacity and price our product appropriately. This is a very pro-competitive transaction with more and better consumer choice than either one of our carriers could muster on its own. When I lay awake at night and worry about competitors, I never worry about United. We don't even really compete with United. We worry about other people.

What is your outlook on the combined entity in terms of long-term growth?

We will always be responsive to market demands. We have tremendous flexibility in combining the two fleets, both for flexing down if we need to and flexing up if the market demand is there. This gives us a tremendous opportunity to grow because we will be more competitive and able to generate additional revenues. We will be very attractive to corporate customers, and that attractiveness will be sticky because we are going to provide the best scope, scale, network and product in the industry.