- guardian.co.uk, Friday 30 April 2010 17.27 BST
Passengers check in at Continental Airlines kiosk located next to a United Airlines check-in area at O'Hare International Airport in Chicago. Photograph: Nam Y Huh/AP
The crowded US airline industry is in for a shake-up as two of the country's biggest players, Continental and United, put the final touches to a merger that would create the world's largest carrier in terms of passenger numbers.
Two years after a previous attempt at a tie-up failed, Continental and United began talking earlier this month and have agreed terms. Board meetings are due to take place over the weekend. Barring any last-minute hitches, a deal could be announced as early as Monday.
United, the bigger of the two airlines, would be the surviving brand and would provide the combined carrier's headquarters in Chicago. Between them, United and Continental would create a force larger than Delta and Northwest, which agreed to merge two years ago.
Airline experts have long favoured consolidation in the industry, arguing that there are too many carriers flying similar domestic routes in the US, leaving little room to make a viable profit. Sadiq Gillani, an analyst at Seabury Group, said mergers generally led to a 10% to 20% reduction in capacity: "There's fundamental over-supply in the US market and any consolidation will address that."
United employs 46,000 people and operates 3,300 flights a day to 236 destinations. Continental, which is based in Houston, has 43,000 staff and flies to 265 destinations.
The two airlines' international networks are considered complementary. United is particularly strong on routes between the US and Asia, while Continental operates flights to more European destinations – it flies to seven British airports including Heathrow, Manchester, Belfast, Edinburgh and Bristol.
Jim Corridore, an equity analyst at Standard & Poor's in New York, said the bulk of any post-merger cutbacks would be within the US: "There's too much competition, there are too many seats available. Airlines have been consistently unable to price their product profitably."
Talks initially stalled over valuation. But Reuters reported on Friday that the airlines had agreed to a ratio whereby 1.05 United shares will be exchanged for each Continental share. United, which made an $82m (£53bn) loss for the first quarter, has a market capitalisation of $3.74bn, while Continental, which made a $146m loss, is worth $3.23bn.
Continental, considered to have a better management team, would provide key personnel. Its chief executive, Jeffrey Smisek, would be likely to run the combined airline with United's Glenn Tilton as non-executive chairman.
The airline industry has gone through a spate of big mergers over the past decade, as carriers have struggled with rising oil prices and costly interruptions such as the impact of the terrorist attacks of September 2001 and the recent ash cloud that halted European flights for several days. Air France and KLM came together in 2004. More recently, British Airways announced it was to merge with Spain's Iberia.
In the US, American Airlines was once the top carrier but is now smaller than both Delta/Northwest and a future combination of United and Continental. The smallest of America's nationwide full-service carriers, US Airways, is likely to be left looking for a partner.