May 3rd, 2010
05:03 PM ET

Financial Dispatch: United, Continental Airlines merging

Andrew Torgan
CNN Business News Producer

Get ready to fly the friendly skies of “Uni-tal”…

United Airlines announced today it will merge with Continental Airlines in a deal worth $3.2 billion, creating the world's largest airline.

The combined carrier, which will fly under the United name and Continental logo, would be larger than Delta Air Lines, which became the country's largest airline when it merged with Northwest in 2008. It’s expected to serve nearly 150 million passengers per year and fly to 370 destinations in 59 countries.

So what does all this mean for consumers? Will flights be cut because of the consolidation? Will ticket prices go up?

United and Continental aren't really commenting on much of that at the moment, but generally, flights do get cut when airlines merge.

And of course, it could also lead to higher fares, since decreased competition typically means higher prices. Industry analysts say fares probably won't be affected between major cities, but they could increase for some international flights and for flights into and out of smaller cities, where the carrier would have more pricing control.

Assuming the deal clears antitrust hurdles, the new airline would be based in Chicago, United's home, and its largest hub will be Houston, Continental's base.

United and Continental discussed merging back in 2008, but Continental backed out of the deal. This time around though, United is in a much stronger financial position.

Airlines collect billons in fees.

Speaking of airlines, the industry raked in nearly $8 billion from fees last year, according to a new government report.

The revenue from so-called “ancillary fees” totaled $7.8 billion in 2009, according to Department of Transportation's Bureau of Transportation Statistics. That's a 40% increase from 2008, when the revenue from such fees totaled $5.5 billion.

That tally does not include air fares. Instead, it's made up of all the extra fees that the various airlines have tacked on over the last few years, including fees for transporting checked bags, pets, and musical instruments. It also includes fees applied to other services, such as curbside check-in or ordering tickets over the phone, but such fees vary from airline to airline.

In 2009, the airlines collected $2.7 billion in baggage fees, $2.4 billion from reservation change fees and $2.7 billion from an assortment of other ancillary fees, such as frequent flyer award program mileage sales.

Delta Air Lines was the leading collector of ancillary fee revenue, bringing in more than $1.6 billion in 2009.

But the carrier that made the most on extra charges is Spirit Airlines. In the fourth quarter of 2009, 21% of the Spirit’s operating revenue came from ancillary fees, a larger percentage than any of its rivals.

In April, Spirit said it would begin charging extra fees for carry-on bags.

Auto sales picture mixed

The major automakers posted double-digit gains in U.S. sales in April compared to a year ago, but the overall pace of sales fell short of March’s results.

Industry-wide sales came in just short of 1 million vehicles, up 20% from a year ago, according to sales tracker Autodata, but a bit shy of forecasts. And sales were down 8% from March.

Ford posted a 25% gain over last year, marking its fifth straight month of gains topping 20%, good enough to move it back ahead of Toyota to be the No. 2 automaker in terms of U.S. sales. But sales fell by 9% from March.

GM sales in April rose 6% from last April, but slipped 2% compared with March.

Sales at troubled Toyota rose 24% compared to a year ago, but fell by 16% from March.

And Chrysler managed a 25% gain over last year, and squeezed out a 3% gain on its March sales total. Among major automakers, Chrysler was the only one that did significantly better than forecasts.

Cutting the cable or dropping the dish

Despite rising cable and satellite TV prices and easy access to streaming TV and movies on the Internet, few consumers have cut the cord. But that looks like it's about to change.

One in eight consumers will eliminate or scale back their cable, satellite or other pay-TV service this year, according to a new study released last week by Yankee Group.

The study, which was the result of a survey of pay-TV operators and more than 6,000 U.S. consumers, found that many will choose to drop premium channels or cut their service down to a basic package, while others will choose to cut off their service completely.

The “cut the cord” trend has been the subject of speculation for some time as networks have increasingly made television programming available for free on the Internet. But a combination of other factors, including battles between cable companies and networks, soaring Internet video viewings and an increase in connected TVs and other devices, all suggest the trend is finally here.

Follow the money… on Twitter: @AndrewTorganCNN

Filed under: Andrew Torgan • Economy • Finance
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