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Continental - United Merger
Smisek defends Continental - United merger in federal court
SAN FRANCISCO - Continental Airlines CEO Jeffery Smisek defended the proposed merger with United Airlines in Federal Court Tuesday, saying his airline would not be able to "compete effectively" without it. Under grilling from antitrust attorney Joseph Alioto Sr., Smisek said, "We've been cutting costs everywhere and we're at the very end of the tree, picking at the very last berry at this point."
Continental and United were sued in June by 49 consumers who claimed the merger would crush competition, resulting in higher fares and reduced service.
The merger makes United the world's largest airline.
Smisek said he did not support a merger when he became CEO in January this year, but grew concerned about media reports that United was in talks with U.S. Airways.
"We always saw United as our favorite merger partner and I was concerned that our merger partner would be gone," Smisek said.
"This already happened to us once before."
Smisek said Continental had suffered enough from the Delta-Northwest merger of 2008, which left Continental as the only other U.S. member of the Sky Team alliance. It has since left the alliance.
"I had a concern that our competitiveness would be adversely affected. I'm always concerned about the future, given the number of bankruptcies that occur in this industry," he said.
Alioto asked, "Do you have to be the largest network in the world to compete effectively?"
Smisek replied, "I'm saying we would not be able to compete as effectively if we were not a merged carrier."
Dressed sharply in a navy suit and dark tie, Alioto addressed U.S. District Judge Richard Seeborg and the gallery with a loud voice and a waggling goatee.
"If one person pays 10 cents more per ticket as a result of an illegal merger, that anticipation should not happen," he thundered. "It's just the same as stealing $1 billion."
But United attorney Katherine Forrest disagreed.
"They're complaining about a merger that is essentially irrelevant to their lives," Forrest said. She said that the 49 plaintiffs do not fly any of the routes that they claim will be adversely affected by the merger.
"These 49 plaintiffs have no hardships against which to balance anything.
They are not representing the flying public," Forrest said.
Alioto showed Smisek documents that seemed to outline Continental's post-merger plans to decrease departures in several hub cities, including San Francisco, Denver, Cleveland and Newark. Denver showed a reduction of 37 departures, 277 seats and 5 million available seat miles.
Smisek said he could not tell Alioto or the court how the hubs would be affected until after the merger.
"Do you intend on shutting down Cleveland?" Alioto asked.
"I don't know," said Smisek. "I've never said I'd shut down any of our hubs because this is based on events over which I have no control."
Smisek said he could not recall ever saying that Continental would reduce any of its flights after the merger.