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United-Continental Merger May Face Harsh Criticism

The proposed merger of United and Continental airlines will almost certainly face a difficult approval process. Both politicians and antitrust regulators are sure to raise questions about the merger and the effect it will have on consumers already concerned about rising ticket prices and a lack of competition.

The airlines are set to face the first set of hearings on June 16th with the aviation subcommittee of the House Transportation Committee. In the meantime, regulators on both a state and federal level will be investinging the effect of the proposed merger.

Executives for both United and Continental have promoted the merger as a transaction that will encourage growth without limiting competition or causing a significant rise in ticket prices.

Critics, including House Transportation Committee chairman Rep. James Oberstar, disagree with company executives and have asked the Justice Department to block the proposed merger, citing concerns about less service, higher ticket prices, and mounting pressure on other airlines to merge in order to compete.

Thus far, the Justice Department has promised a fair and thorough review of the merger, but the Obama administration has assured that it will look critically at large mergers that potentially leave a few companies in control of large industries.  

One of the main issues that must be addressed in approving the merger is assuring that it does not create situations in which there is little or no competition in certain markets. As things stand right now, United and Continental have 13 overlapping routes. The proposed merger may create a monopoly or duopoly in 11 of those routes.

This overlap alone likely won't create too great a problem, given that the recent Delta-Northwest merger caused an overlap of a dozen routes. During their merger in 2008, Delta made the argument that discount airlines like Southwest and JetBlue would ensure that ticket prices do not rise too high. It remains to be seen if the current administration is as receptive to those arguments.

Even if the overlap were to provide an obstacle, it may not be enough to prevent the merger as the airlines could be forced by regulators to give up gates or landing slots to other airlines.

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