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Reader Dave C. writes:

Rumors about United merging with Continental are in the news lately. What’s your take? Will it happen? What can passengers expect?

For a while now, these rumors have been floating around. Months ago, Continental’s CFO said he would be happy to see United offer a merger, as long as it came with a “bucket of dough.” (They’ve backed off that rhetoric, and now say publicly that they’d prefer to go it alone.)

It sure looks like United really is shopping itself. They just hired Goldman Sachs to “explore a range of strategic options, including possible mergers with other carriers.”

I’m no financial analyst, but when is the last time an investment bank DIDN’T recommend a merger or acquisition to a company that hired it? Call me a cynic, but the money is in making the deal, not in giving long-term advice.

The executives at United would stand to make a pretty penny on a merger, too. (United’s CEO just re-upped through 2011.)

So I think that SOME sort of deal is inevitable. Will it be with Continental? I have no idea. Route networks between the two airlines are complementary, but there are equipment differences and probable conflicts in determining seniority among employees. Plus, Northwest owns a stake in Continental and can play spoiler to any merger, unless it’s bought off. And the federal government can block any merger if it deems it uncompetitive.

You might also see some more complex deals. Hypothetical scenario: United buys Northwest but agrees to sell off the Pacific routes to avoid monopoly. Then United and Continental can merge. (Doubtful.) Alternatively, the companies merge but operate separately, like Air France-KLM in Europe. One company, two airlines. Who knows!

But the bottom line for travelers doesn’t look good. Planes are full, demand is there, and airlines are eking out a profit, even with high oil prices. When airlines say there’s too much capacity, it just means that they want to charge more. A merger would drive out competition and increase prices — at ALL airlines, not just United-Continental. Not to mention the mess that could arise from merging two frequent flyer programs.

I’m wary of a merger, and hoping it doesn’t happen.

(image: caribb)