I have been a lover of all things Continental since 1984. Only weeks after I moved to Houston, Frank Lorenzo‘s Texas Air Corporation acquired Bob Six’s Continental in a hostile take-over financed by Continental’s cash assets and business assets. “Frank”, as he was widely known throughout his tenure raping and pillaging first Texas International, then Continental, then Eastern, then PeoplExpress (including Frontier), was a master of using the Federal bankruptcy courts to accomplish his goals. In 1983, Frank threw the whole kit and kaboodle into bankruptcy to avoid (cancel) the union contracts that came with the Continental Airlines acquisition. ALPA struck Continental in bankruptcy, only to discover that the world had moved on and that the pilots’ strike wouldn’t cripple operations as it had in the past. Frank also started up a new, non-union shop in New York called “New York Air“, leveraging Continental’s resources and certifications.

Through tribulations, the Continental employee base struggled and achieved. From a West coast niche airline, Continental briefly enjoyed being the world’s largest airline when Frank insisted on a “mash-up” of Continental, Frontier, PeoplExpress, New York Air and what remained of Eastern on a single day without much in the way of planning.

I’m sure that my love affair with Continental stemmed partly from they’re being a local company to Houston. My best friend Scott working for them, and being on of the funniest, more engaging people I’ve ever known certainly brought me in more tightly. Before I met Scott, though, I was a charter member of Continental’s TravelBank – their frequent flier program which was supplanted by the absorption of Eastern’s much larger OnePass program in 1986. I still have my first day of issue OnePass card with a number so low that it makes gate agents eyes pop when I’ve pulled it out of hiding. I’m going to miss having that number.

Continental went from “worst to first” with the arrival of Gordon Bethune. More than six years ago, I noted that Continental was the first North American carrier to come close to replicating Pan Am’s global route system. Now, with the United merger, they have exceeded that measure.

As a merged entity, United  is the only world carrier with a multi-hub presence that reaches every continent save for Antarctica. Sure, the big European carriers also go everywhere, but they are all based in a single hub city – their travel is in/out from that hub. Two trans-pacific hubs, nearly three. Two Latin America hubs, four transatlantic hubs. As they merge into a cohesive operating unit, they’re going to do some serious corporate combat, especially in the Latin American, northern Pacific and European/South Asian routes.

Continental, from Bob Six’s glory to Gordon’s army of zealots, has always made less work harder. When Bob Six ordered 707s from Boeing, he had his engineers create a unique, new maintenance check system that performed the lighter checks during RON, rather than taking them off line and routing them into maintenance. This allowed him to run his six 707s as if they were eight or maybe even nine, even allowing Continental to run TWA out of the ORD-LAX competition. During Gordon’s day, the DC-10 and then the 777 fleet were utilized upwards of 20 hours out of 24. Scheduling kept everything on a hot boil, and the tight ship produces revenue multiples that most other network carriers couldn’t understand.

Given that it’s Continental’s ops certificate that will survive, and given that Continental ops/scheduling seems to be prevailing in the merged entity, what kind of 800 pound gorilla will United be with significantly higher utilization? A dominant 800 pound gorilla, that’s what.

Although they will thrive, and will be the dominant international network carrier, the days of a DC-10 pub service, of the Proud Bird with the Golden Tail, of BusinessFirst being competitive with International First, of an energized and exuberant work force making things happen for a large customer base that prides themselves on knowing the Continental “secret” are well and truly over. Nothing of United’s merged behavior conveys that the new carrier’s “pizza” will be all that different from anyone else’s.

Rest well in our memory, Continental Airlines. May your name and your history rise to rank with that of Pan Am, Braniff and others that led the way with you.

Check this out - One Reason the Street Should Love UnitedContinental earnings

Otherwise, it’s business as usual over there – charge more, deliver less. And, I’m going to hedge my bets on UA ordering 748i going forward – I’m now leaning more toward 773M for them.

It’s not what happened at all.

United and Continental agreed to merge. A merger is a combination of two companies into a single enterprise.

A purchase is a purchase.

When United and Continental agreed to merge, they created a new corporation (UnitedContinental Holdings, Inc.) which issued new shares. These shares were traded for all of the outstanding and existing stock that each of United and Continental had. No United stock is left. No Continental stock is left.

Delta and Northwest recently combined. Delta, without changing its corporate structure, issued new shares and exchanged those for Northwest stock. Northwest, and all of its corporations ceased to exist entirely, and only Delta was the surviving entity.

That the trade name United is being used in the United Continental tie-up is the surviving name does not make it a purchase.

What has changed?

“Frank Lorenzo in a better suit”, aka Jeff Smisek.

Even after 9/11 and the calamitous environment for the airline industry, Continental alone maintained its standards for passenger experience. The ads showing pillows and blankets being thrown off of the airplane, free food in coach at mealtimes, an engaged employee population, all of these things provided support for Continental charging a fare premium to most other carriers, as frequent fliers chose Continental in droves.

There is no way to know just how many WorldPerks and SkyMiles rewards were redeemed on Continental metal. People who had flown Northwest for decades jumped at the chance to fly on a carrier that had clean, tidy airplanes, enough cabin staff to keep everyone happy, left on time, and made a person feel like a valuable customer.

At the end of 2004, Gordon Bethune left the airline. He was pushed out by an investment group who wanted more profits from the revenue stream. Gordon, who had been the champion of both customers and employees, crafted the programs that made Continental the sole premium brand airline in North America. Larry Kellner, who had been the CFO, was elevated to Chairman.

Larry seemed a good enough guy, although the employees didn’t care for him. He did what all accountants do; he counted beans. However, he had been close enough to Gordon’s success that he was able to see the bigger picture. Service didn’t decline too much, and profit enhancements were generated through adding winglets to the entire 757 and 737NG fleet. Aircraft utilization continued to climb – when an American jet or a United airplane was basking in the moonlight, CO’s fleet were leaving contrails on their way to someplace far away, loaded to the gills with passengers.

The route structure continued to expand, even though new aircraft deliveries belied the possibility. Continental was fast approaching replacing Pan American World Airways as the one airline that could take you anywhere.

Larry lasted until the end of 2009. Were we really supposed to believe that Larry wanted to go back to being a private equities broker? That’s the airline industry equivalent of “wanting to spend more time with my family”.

The open question was, which position was it that had prevailed in the Board Room at 1600 Smith St.? Merger or not-merger?

Larry kept his own counsel on the matter. Gordon, too, kept silent, although he continued to champion more industry combinations.

Jeff Smisek, a Harvard lawyer, took over as chairman. It didn’t take very long before it was revealed that the pro-merger forces had prevailed. It also was revealed that profit at any cost was the new marching order of the day.

Free food, blankets and pillows, OnePass rules, free checked bags where chucked out of the cabin door along with employee morale and the attitude of customer accommodation.

Employees are no longer partners in providing the best customer experience; they’re now like Eastern Airline’s overworked, beaten down staff. The airplanes are no longer as clean. Cabin crew are now tasked with up-selling everything, moving about the cabin with WiFi credit card readers. Everything about the passenger operation now screams “have your credit card ready”.

As Hyundai, Audi, or GM – it takes decades to build a powerful customer reputation, and only a few months to destroy it.

Recently, friends who have flown Continental have been universally displeased and derisive. One has said she is sure that the newly merged United staff is behind the problem.

They’re not.

United’s employee population has already been beaten into submission. Their sole hope of salvation was that Continental’s storied passenger and employee relationship culture would lift them from the damp, dark galleys in which they labored.

It was not to be. Recently, “United” decided to take their pilot negotiation demands to the public, in an effort to persuade the public that labor was being unreasonable.

Instead of lifting United up, Smisek has piloted Continental down to a level consistent with the dank expectations of United’s long-suffering customer base, likely in order to simplify merging a former high flyer with a clunky, hapless, hopeless stalwart.

So, I humbly suggest that we adopt the following abbreviations for the new United –

UA/UAL – the combined United in its entirety

LUAL – Legacy United – fleet, practices, employees, everything

LCAL – Legacy Continental – fleet, practices, employees, everything

That is all.

It’s no secret that American’s in a bad way – they’re going to be knocked down from King of the Hill to #3 in short order. They’re out of cash. Their fleet is old. Their route structure needs amping up. They don’t service Oceania anymore. They’re very weak across the Pacific. They’re weak to Europe in comparison to Delta or United’s structure.

What to do? Especially when Lufty snaps up Doug Parker’s little project?

Let someone else drive.

United (new) is going to order a TON of new equipment in the next five years, including some 747-8i.

United has a fleet of very new (and very efficient) 737NG aircraft, and a fleet of ratty and very old A320. United leased the A320 from Airbus in 1992; and took delivery of them over the next few years. Only legacy Northwest’s A320s are older.

As I have previously noted, the A320 service life cannot be economically extended, and as these ships age out, they’ll be replaced. By Boeing.

United’s 744s have been kicked around for quite some time, but they’re good performers. They have 24 in service, and about half were delivered prior to 1992; the rest between 1997 and 2000.

The 744s have an outstanding used market for freighter conversions. At some point in the not so distant future, United is going to join Star Alliance partner Lufthansa in operating the 747-8i. It may be only a boutique fleet, but it’s going to happen.

USAirways will sell itself to Lufthansa.

This makes perfect sense. USAirways cannot continue to thrive where they are virtually shut out by Delta, United and American. They don’t have the hub and route structure necessary, they have almost no funding for expansion or new equipment and .. if they have to file again, this third time won’t be the charm.

Virgin America has already demonstrated exactly how to handle the foreign ownership restrictions that would limit any such transaction. No wheels to re-invent.

Lufthansa has already acquired and dramatically improved several airlines in Europe – Swiss, Austrian, SNBrussels, and seems to have a lock on SAS. But, they have nothing but O&D in the biggest airline passenger treasure chest of all – North America.

Lufthansa has the ability to inject the cash, provide the extraordinary management, the IT capacity, the route planning, and to provide appropriate aircraft to make USAirways a true competitor to the other Legacy majors in North America. With that, Lufty will be able to compete directly with its Star Alliance partners in North America, and with Delta and American.

Doug Parker? Lufthansa has your Golden Ticket.

Delta is going to buy all 88 of AirTran’s Boeing 717 fleet, and use them to replace MD-80 series aircraft, as well as some of legacy Northwest’s older A320s.

Delta has been in the used market, snapping up every MD-90 they can find. The MD-80s have Flintstone era technology, and suck down gas like my old ’73 Chrysler Imperial did. The A320s are NOT designed for constant rebuild and rehab as are Boeing ships, and Delta has already begun retiring some of the older A320s.

There isn’t a single iota of possibility that Southwest will hang onto those 717s for a moment longer than is necessary. Qantas Air Link is unlikely to buy them. TWA is gone. Midwest Airlines is gone. JetStar already ditched all of theirs. Who’s going to take on a completely new aircraft type that has already been discontinued?

Delta’s already warming up the checkbook. You can count on that.

To make it an easier read, I’ll just do one a day.

To start, I’ll do my (former) hometown airline, UCon (now NuCon, or United as it is more commonly known).

United (combined) has already begun to re-gauge several routes and their two east coast hubs – EWR and IAD. A whole lot of big legacy UA metal is moving up to EWR and a whole bunch of CO’s snappy little 75M are going to be hauling the political worker bees across the pond on legacy UA’s routes from IAD.

This makes a whale of a lot of sense.

Rumor has it that a few of legacy UA’s 744s are going to be running from IAH – NRT, FRA, LIM, LHR – the demand is there, and UCon hasn’t had the metal to upgauge.

United is making a push at NRT and flogging the regulatory authorities hard on Tokyo Haneda, now that Delta has drawn down service there.

Here comes my prediction – United is going to be a money machine. They will have the ONLY truly global airline – something that eluded even Pan Am in their heyday. Delta has very little to Latin America, in which United is immensely strong. United’s partnership with Lufthansa’s constellation of carriers will produce enormous revenue generation, as will Lufty and United’s transpacific agreements with ANA. This is basically a kick in the groin to JAL, who is already on the ropes.

The new United, as my buddy Gailen David today noted, seems to be choosing most of legacy Continental’s operating standards going forward – which is a very good thing. With an advancing reputation for service, the right ship on the right route, and the sole opportunity for a traveler anywhere to stay online everywhere – United is going to be the next King of the Jungle.