[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                  COMPETITION IN THE AIRLINE INDUSTRY

=======================================================================

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 16, 2010

                               __________

                           Serial No. 111-107

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee               STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
  Georgia                            LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               TED POE, Texas
JUDY CHU, California                 JASON CHAFFETZ, Utah
TED DEUTCH, Florida                  TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel











                            C O N T E N T S

                              ----------                              

                             JUNE 16, 2010

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Member, Committee on 
  the Judiciary..................................................     1
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     2

                               WITNESSES

Mr. Glenn F. Tilton, Chairman, President and CEO, UAL Corporation
  Oral Testimony.................................................     4
  Joint Prepared Statement.......................................     8
Mr. Jeffery Smisek, Chairman, President and CEO, Continental 
  Airlines
  Oral Testimony.................................................     5
  Joint Prepared Statement.......................................     8
Mr. Darren Bush, Associate Professor of Law, The University of 
  Houston
  Oral Testimony.................................................    18
  Prepared Statement.............................................    21
Mr. Jay Pierce, Captain, Chairman, Continental Master Executive 
  Council, Air Line Pilots Association, International
  Oral Testimony.................................................    39
  Prepared Statement.............................................    41
Ms. Wendy Morse, Captain, Chairman, United Master Executive 
  Council, Air Line Pilots Association, International
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47
Mr. William S. Swelbar, Professor, Research Engineer, Department 
  of Aeronautics and Astronautics, Massachusetts Institute of 
  Technology
  Oral Testimony.................................................    51
  Prepared Statement.............................................    52
Mr. Robert Roach, Jr., General Vice President--Transportation, 
  The International Association of Machinists and Aerospace 
  Workers
  Oral Testimony.................................................    57
  Prepared Statement.............................................    59
Mr. Patricia A. Friend, International President, Association of 
  Flight Attendants--CWA
  Oral Testimony.................................................    79
  Prepared Statement.............................................    81

 
                  COMPETITION IN THE AIRLINE INDUSTRY

                              ----------                              


                        WEDNESDAY, JUNE 16, 2010

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 2:10 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr., presiding.
    Present: Representatives Johnson, Scott, Jackson Lee, 
Cohen, Quigley, Chu, Deutch, Gutierrez, Polis, Smith, Coble, 
Issa, and Poe.
    Staff Present: (Majority) Perry Apelbaum, Staff Director 
and Chief Counsel; Travis Chapman, Counsel; Elisabeth Stein, 
Counsel; Sam Sokol, Counsel; (Minority) Sean McLaughlin, Chief 
of Staff and General Counsel; Stewart Jeffries, Counsel; and 
Richard Hertling, Deputy Chief of Staff.
    Mr. Johnson. This Committee will come to order. Good 
afternoon, everyone.
    Today, we will examine a proposed merger between two 
equals, Continental Airlines and United Airlines. Continental 
had $12.5 billion in revenue in 2009, and United earned $16.3 
billion in 2009; and as two of the five remaining legacy 
airlines in the United States, this merger raises concerns as 
to whether competition in the airline industry will be 
maintained in the face of continuing, widespread industry 
consolidation.
    This is not a new situation. Back in 2008, Delta and 
Northwest merged to become the largest airline, which currently 
has an operating revenue of $28.1 billion. The merger we 
consider here today would rival that and, by some estimates, 
top it, creating the largest United States carrier in terms of 
revenue and available seat miles, the standard industry measure 
of size.
    Let me say up front that I do not oppose this merger in its 
entirety. However, competition must be protected in the airline 
industry. While I understand that the parties to the merger 
have stated that the merger will create efficiencies and 
increase competition in the industry, I do have a few concerns 
about the impact of the proposed merger; and as Chairman of the 
Subcommittee on Courts and Competition Policy, I believe that 
conditions must be imposed to protect jobs and competition.
    I would note for the record that this is a full Committee 
hearing, and I have been asked by Chairman Conyers to Chair the 
meeting until such time as he arrives.
    As the economy slowly recovers, it is increasingly 
important that existing jobs not be lost. The Judiciary 
Committee asked Continental and United to provide guarantees 
that they will not reduce jobs. The parties have responded that 
they would be unable to provide such guarantees. This is not an 
acceptable answer, and I hope that both CEOs and the other 
witnesses will address the issue of how to ensure that jobs are 
not lost if the merger is approved by the Department of 
Justice. I understand that several of our witnesses today will 
address this issue.
    I am also concerned that this proposed merger will result 
in the closing of hubs. The airlines have invested significant 
amounts of money in creating hubs, and local economies rely on 
the business created by those hubs. I hope that the CEOs will 
address this concern and make public comments and public 
commitments to this Committee today that they will not close 
any hubs if the merger is approved.
    As most of you know, airline travel is increasingly 
difficult these days. So I am also concerned that the merged 
airlines will eliminate routes and result in fare increases. 
The companies have assured us they do not have significant 
overlapping routes and that low-cost carriers such as Southwest 
Airlines will keep ticket prices down. However, low-cost 
carriers operate largely on a point-to-point basis, and fares 
increased 10 percent in the wake of the Delta Northwest merger 
for routes where the companies had previously competed. I hope 
the witnesses today will address whether there will be 
competitive harm to smaller routes and an increase in ticket 
prices as a result of this merger.
    The proposed merger appears to create efficiencies which 
will better serve the American public by creating a more 
competitive carrier that will allow the public to book seamless 
flights to more destinations, but it also raises serious 
concerns about the impact of the merger on competition and the 
risk of job loss. I look forward to the testimony from today's 
witnesses to address all of these concerns.
    And now I recognize Ranking Member Lamar Smith for an 
opening statement.
    Mr. Smith. Thank you, Mr. Chairman.
    Vigorous, unimpeded competition sustains our economy and 
keeps it going. It leads to innovative products that better our 
lives, give us more choices, and keep prices low.
    The Judiciary Committee has a long history of oversight to 
ensure that American markets retain healthy competition. This 
hearing is evidence of the Committee's continued role in 
considering mergers of large companies that can affect American 
consumers.
    Today's hearing gives us the opportunity to examine the 
proposed merger of United and Continental airlines. This 
combination would create one of the world's largest airlines 
but not one that would dominate the industry. The question that 
the Department of Justice must answer in reviewing this merger 
is whether the proposed transaction will lessen competition and 
harm consumers.
    We will hear today from the CEOs of both Continental and 
United that this proposed deal does not raise significant 
competitive concerns because the two airlines do not have 
significant overlaps in the number of cities that they serve.
    Two years ago, this Committee held a hearing on the now-
consummated merger of Delta and Northwest Airlines. At the 
time, there were fears that that combination would lead to a 
rash of merger filings of other carriers. That merger wave has 
failed to materialize.
    This is the first major airline merger since the Delta-
Northwest deal. Now news articles suggest that this merger will 
cause remaining carriers, American and US Airways to merge. I 
am wary of such consolidation and think it is something that 
the Committee should monitor closely. Nevertheless, each merger 
must be judged on its own merits. If anything, Continental and 
United seem to have even fewer overlaps and, thus, fewer 
competitive consequences than the Delta-Northwest deal did.
    Based on what we have heard so far, this merger, on 
balance, does not appear to pose serious risk to the consumer. 
However, as a Texan, I am sorry to see one of our finest 
corporate citizens, Continental, depart for another State. I 
know that the combined airline has pledged to keep a 
significant presence in the Houston area.
    Mr. Chairman, I look forward to our witnesses' views and 
yield back the balance of my time.
    Mr. Johnson. Thank you, Congressman Smith; and, without 
objection, other Members' opening statements will be included 
in the record.
    We have with us today a panel of distinguished witnesses.
    First, we have Mr. Glenn Tilton. Mr. Tilton is the 
Chairman, President, and CEO of United Airlines Corporation, 
the parent of United Airlines. Is it UAL or United Airlines?
    Mr. Tilton. UAL.
    Mr. Johnson. UAL Corporation, the parent of United 
Airlines. Mr. Tilton joined United in 2002 after a 
distinguished career in the oil and gas industry.
    Next, we have Mr. Jeffery Smisek. Mr. Smisek has been with 
Continental Airlines for over 15 years, serving first as 
General Counsel and has risen within the organization since 
then. He now serves as Chairman, President, and CEO of 
Continental.
    We also have Professor Darren Bush. Professor Bush is an 
Associate Professor at the University of Houston Law Center. He 
was a consulting member of the Antitrust Modernization 
Commission, a bipartisan task force established by the 
Judiciary Committee to critically evaluate antitrust law. He is 
also on the advisory board of the American Antitrust Institute.
    Next, we have Captain Jay Pierce. Captain Pierce, an Army 
veteran, has served as a pilot at Continental Airlines for over 
20 years. He currently serves as the Chairman of the 
Continental Master Executive Council of the Airline Pilots 
Association.
    We now come to Captain Wendy Morse. Captain Morse has been 
a pilot for over 30 years, the past 25 spent flying at United. 
She has been involved with the Airline Pilot's Association for 
over a decade and currently serves as the Chairman of its 
United Master Executive Council.
    Next, Professor William Swelbar. Professor Swelbar is a 
research engineer at the Department of Aeronautics and 
Astronautics at the Massachusetts Institute of Technology's 
International Center for Air Transportation. Prior to his 
appointment at MIT, Professor Swelbar had a long history as an 
advisor and consultant on the airline industry.
    Next, we have Mr. Robert Roach, Jr. Mr. Roach is the 
General Vice President for Transportation of the International 
Association of Machinists and Aerospace Workers. He joined IAM 
during his service at Trans World Airlines and has been 
involved in the union for over 3 decades.
    Finally, we have Ms. Patricia Friend. Ms. Friend started 
her career as a flight attendant at United over four decades 
ago. She currently serves as the International President of the 
Association of Flight Attendants, CWA, a position she has held 
for the past 12 years.
    On behalf of the Judiciary Committee, I would like to 
welcome all of you to this afternoon's hearing. You will each 
have 5 minutes to give your opening statement; and at the 
conclusion of all of the opening statements, the Members of the 
Committee will have an opportunity to ask questions.
    Mr. Tilton, would you please begin.

            TESTIMONY OF GLENN F. TILTON, CHAIRMAN, 
               PRESIDENT AND CEO, UAL CORPORATION

    Mr. Tilton. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify today.
    The status quo for our industry is clearly unacceptable. It 
is extraordinary and insightful that this industry has lost 
some $60 billion and 150,000 jobs in this country over the last 
10 years, delivering inarguably the worst financial performance 
of any major industry, along with 186 bankruptcies over the 
past 30 years.
    Both before and after deregulation, this industry has been 
systemically incapable of earning even a modest profit, let 
alone a reasonable return on the large investment that we have 
made in aircraft, facilities, and technology. It is ironic then 
that this industry, unable to cover its cost of capital, is 
expected to be and indeed must be a key enabler of the 
country's economic recovery.
    As leaders, you all know the critical role that our 
industry plays nationally and in the communities that you 
represent in driving commerce, tourism, creating jobs, and 
contributing to the larger economy. Regardless of our personal 
perspectives, we can likely all agree that serial bankruptcy 
and the asset distribution of failed companies is not an 
acceptable strategy for an industry. We must create economic 
sustainability through the various business cycles; and, to 
that end, our objective at United has been very consistent, to 
put our company on a path to sustained profitability. Without 
profitability, we cannot provide a stable environment for 
employees. Without profitability, we cannot maintain service to 
communities large and small or invest in customers service, nor 
can we create value for our shareholders.
    To be profitable, we must successfully compete in the 
global market as it is today, a very different market to that 
of 10 years ago or, indeed, that of 30 years ago. Today, across 
the U.S. market, low-cost carriers are very, very well 
established; and Southwest Airlines will continue to be the 
country's largest domestic airline in terms of number of 
passengers flown after our merger is concluded.
    Today, international competitors have merged and powerful 
new entrants continue to gain ground. Today, the world's 
largest airlines, measured by revenue, are not United, not 
Continental, not American, but Lufthansa and Air France, KLM, 
with more than half of all transatlantic capacity and more than 
two-thirds of all transpacific capacity being provided by 
foreign carriers.
    United and Continental have both taken significant actions 
to improve our performance, competing across both international 
and domestic markets and, at the same time, finding a way to 
connect small U.S. communities into our combined route 
networks. In this dynamic, highly competitive environment, 
however, those actions alone are not enough.
    Our proposed merger is a logical and essential step toward 
our mutual objective of sustained profitability. To be clear, 
without this merger, we would not have the $1 to $1.2 billion 
in synergies to improve products and services for customers and 
the financial means to create better career opportunities for 
our employees. We will not be as effective a competitor as we 
need to be to be successful and enable economic development.
    Our merger enhances and strengthens service for those who 
rely on our networks in nearly 148 small communities and 
metropolitan areas, providing business lifelines and collateral 
economic opportunities for those communities that are not 
traditionally served by low-cost carriers.
    Carriers compete vigorously on both price and on service, 
and our merger will not change that reality. There is 
significant low-cost carrier competition at every single one of 
our hubs, including the 15 nonstop routes on which we overlap.
    Over the last decade, ticket prices have declined by some 
30 percent, adjusted for inflation, with fares to small 
communities also declining. Our expected revenue synergies are 
derived from better service and an expanded network. They are 
not based on fare increases. This represents excellent value 
and more destinations for consumers. Consumers will continue to 
benefit from intense price competition across this industry due 
to the prevalence of low-cost carriers.
    Mr. Johnson. Mr. Tilton, your time has expired. But if you 
would sum up, I would appreciate it.
    Mr. Tilton. Sure. Absolutely, the competitive landscape has 
changed; and to be a company that attracts and provides value 
for customers, shareholders, and employees, Continental and 
United also have to change. Thank you.
    Mr. Johnson. Thank you, sir. And, pardon me, I did not tell 
you about the color system that we have on the little boxes 
down there. When you start your 5 minutes, it will show a green 
light. Then when you get down to 1 minute of time left, it will 
go to yellow. And then once it goes to red, that means time has 
expired. So if you would keep your comments within that time 
period, we would greatly appreciate it.
    Mr. Smisek.

            TESTIMONY OF JEFFERY SMISEK, CHAIRMAN, 
            PRESIDENT AND CEO, CONTINENTAL AIRLINES

    Mr. Smisek. Thank you. Appreciate the opportunity to be 
here today.
    I want to make four main points. This merger is good for 
employees, it is good for communities, it is good for 
consumers, and it is good for competition.
    I would like to start with employees.
    The volatility and instability of the airline industry have 
had harsh effects on employment. Before 9/11, Continental had 
over 54,000 employees. Despite being the only network carrier 
to have grown since 9/11, we have less than 41,000 employees 
today. Before 9/11, United had over 100,000 employees. Today, 
United has about 46,000.
    After we merge, our employees will be part of a larger, 
financially stronger, and more geographically diverse carrier. 
This carrier will be better able to compete in the global 
marketplace and better able to withstand the external shocks 
that hit our industry with disappointing regularity.
    Because of how little we overlap, the merger will have 
minimal effect on the jobs of our front-line employees. We are 
committed to continuing our cooperative labor relations and 
integrating our work forces in a fair and equitable manner, 
negotiating contracts with our unions that are fair to the 
employees and fair to the company. United has two union members 
on its board of directors, and those union board seats will 
continue after this merger.
    The merger will enable us to continue to provide service to 
small communities, communities many of you represent. The 
turmoil in our industry has been devastating to many small- and 
medium-sized communities. As you know, low-cost carriers have 
not and will not serve small communities, as such service is 
inconsistent with their point-to-point business models that 
rely largely on local traffic. As a result, over 200 small 
communities are served only by network carriers. As a merged 
carrier, we plan to continue to provide service to all of the 
communities we currently serve, including 148 small 
communities.
    The merger will be good for consumers as well. The combined 
airline will offer consumers an unparalleled integrated global 
network and the industry's leading frequent flyer program. It 
will have the financial wherewithal to invest in technology, 
acquire new aircraft, and invest in its people and its product. 
We will have a young and fuel-efficient fleet, and our new 
aircraft orders will permit us to retire our older, less-fuel-
efficient aircraft.
    Continental brings to the merger its working-together 
culture of dignity and respect and direct, open, and honest 
communication. This culture creates a workplace where people 
enjoy coming to work every day and, thus, give great customer 
service.
    United brings to the merger talented employees who are 
delivering industry leading, on-time performance.
    The merger will also enhance competition. Continental and 
United have highly complementary route networks. Our networks 
are so complementary that we have only minimal nonstop 
overlaps, each of which faces significant competition after 
this merger. Over 85 percent of our nonstop U.S. passengers 
have a direct, low-cost carrier alternative.
    Moreover, low-cost carriers compete at all of our hubs and 
at airports adjacent to our hubs. As a result of the robust 
competition in the U.S., air fares have declined by over 30 
percent over the past decade, adjusted for inflation.
    We also face significant competition from foreign carriers, 
which themselves have merged to create attractive global 
networks such as Air France-KLM, the Lufthansa group of 
companies and British Airways Iberia. The merged Continental 
United will enable us, as a U.S. Carrier, to compete 
effectively against these large foreign airlines.
    In sum, the merger will create a strong, financially viable 
airline that can offer good-paying careers and a secure 
retirement to our co-workers, great customer service, and an 
unparalleled network to our consumers and reliable service to 
communities. The merger will provide us with a platform for 
sustainable profitability and position us to succeed in the 
highly competitive domestic and global aviation industry, 
better positioned than either carrier would be alone or 
together in an alliance.
    Thank you very much.
    [The joint prepared statement of Mr. Tilton and Mr. Smisek 
follows:]
     Joint Prepared Statement of Glenn F. Tilton and Jeffery Smisek




                               __________

    Mr. Johnson. Thank you. Next we will hear from Mr. Bush.

TESTIMONY OF PROFESSOR DARREN BUSH, ASSOCIATE PROFESSOR OF LAW, 
                   THE UNIVERSITY OF HOUSTON

    Mr. Bush. Thank you, Mr. Chairman and Ranking Member Smith, 
from my home State, and other distinguished Members of this 
Committee. I want to thank you for giving me the opportunity to 
speak about the potential anticompetitive effects spurred by 
the proposed merger of Continental Airlines and United 
Airlines. I speak today on my behalf and on behalf of the 
American Antitrust Institute.
    Little has changed for the better in the airline industry 
in the past decade, except that the pressure to consolidate has 
increased in the wake of previous mergers, and the pending 
transaction reflects what I believe to be yet another cog in 
the merger wave.
    Rather than rehash my written testimony fully, I want to 
signal to you not only the things that may be problematic with 
this merger but also the things that may be problematic with 
the Department of Justice's ultimate decision with respect to 
the merger. I do so to highlight larger issues in the world of 
antitrust that are in dire need of your attention.
    With respect to anticompetitive harms, the DOJ, in the 
context of airline merger review, examines the following 
issues, all present in the pending transaction:
    One, the effect of the merger on competition and nonstop 
city pair markets, typically routes between the hubs of the 
merging airlines. Two, the effect of the merger on competition 
and connection markets. Three, the potential competition 
between United and Continental in markets which they currently 
do not serve. Four, competition for contracts. Five, the 
diminishment of systems competition between the two networks. 
And, six, the combination effect on downstream and upstream 
markets.
    These issues, at least as raised in the DOJ's excellent 
press release in the United/US Airways investigation, are fully 
understood by the agency staff. I reserve judgment as to 
whether such issues are fully understood by the current 
Administration in light of their decision and the previous 
Administration's decision with respect to the Northwest/Delta 
merger.
    There are some other issues, however, that will cause DOJ 
staff some pause, both in terms of analysis and in terms of 
potentially bringing an action should this merger prove 
anticompetitive.
    First and foremost, there will be follow-on mergers. This 
is a follow-on merger. Northwest/Delta could be considered a 
follow-on merger to the attempt of United/US Airways and US 
Airways and America West. Follow-on mergers occur because the 
competitors of the merging parties perceive that there is some 
potential advantage to merger and consolidation, regardless of 
the veracity of that notion. Follow-on mergers in times of 
industry distress, perceived or actual, are almost inevitable.
    Of course, I am not saying that the peer pressure is 
warranted. In fact, we have had a tremendous amount of 
consolidation in this industry since the late 1970's. Is the 
industry more profitable? Are the flying consumers awash in 
improved service? Will fewer systems improve the situation or 
make it worse?
    Even if an anticompetitive merger is flagged by staff and a 
recommendation to challenge the transaction is endorsed by the 
front office, there are many hurdles which make a merger 
challenge a daunting task for staff. To begin, courts, have in 
my opinion, made it abundantly clear that they no longer follow 
the incipiency standard in section 7 of the Clayton Act. 
Whether or not the transactions are likely to tend to lessen 
competition seems irrelevant in court. What only matters is 
tangible evidence that the merger will lessen competition, a 
nearly impossible unspoken standard in a forward-looking 
analysis such as merger review.
    Moreover, recent agency decisions and judicial decisions 
have made it clear, at least to me, that efficiencies, no 
matter how weak, ethereal, speculative, and illusive as they 
are in the airline industry, are the king of antitrust. Even 
when there is clear anticompetitive effects, as I believe there 
is in this instance, what matters appears to be whether there 
are some efficiencies to justify the transaction, even if the 
transaction is inherently anticompetitive.
    Of course, this is not the proper standard for 
efficiencies, the purpose of which is not to act as a trump 
card but rather to act as an additional tool to determine 
whether or not the mergers are that anticompetitive. Thus, even 
where staff might want to challenge a merger, I worry that, in 
instances such as United/Continental, whether or not the merger 
will go unchallenged will depend on, one, whether there is a 
twinkling in the eyes of management with respect to 
efficiencies. No matter how--what the economic literature tells 
us about such twinkling, efficiencies in the airline industry 
traditionally do not pan out. However, the courts will view 
them as panning out and take them as gospel, even in view of 
serious anticompetitive effects.
    With efficiencies trumping traditional antitrust analysis, 
the courts reluctance to examine difficult antitrust issues and 
ignoring consumer testimony, staff faces an uphill battle in 
bringing an action to enjoin an anticompetitive merger, should 
this in fact turn out to be one.
    Thank you.
    [The prepared statement of Mr. Bush follows:]
                   Prepared Statement of Darren Bush




                               __________
    Mr. Johnson. Thank you.
    Mr. Pierce.

TESTIMONY OF JAY PIERCE, CAPTAIN, CHAIRMAN, CONTINENTAL MASTER 
 EXECUTIVE COUNCIL, AIR LINE PILOTS ASSOCIATION, INTERNATIONAL

    Mr. Pierce. Good afternoon, Mr. Chairman, Ranking Member 
Smith, and Members of the Committee. Thank you for the 
opportunity to speak regarding the proposed Continental/United 
merger. I am particularly thankful that you have taken the time 
to consider the effect that this proposed merger may have on 
labor.
    I tend to think of things in terms of opportunities, risks, 
and rewards. I believe that this merger will be an exercise in 
all three. The questions that have to be answered are: Will the 
opportunities produce success? Who will assume the risks? And, 
finally, who will reap the rewards?
    To some, the initial value created by participating in the 
merger game will allow claims for success. However, if creating 
a story for Wall Street simply through participation is the 
goal, the bar is set too low. None of us should accept a 
philosophy of mediocrity as the standard for success.
    If done correctly, this merger can strengthen our airlines 
and resurrect a failing industry. This is the opportunity.
    Our merger partner's, United, financial performance has 
been in critical condition; and although ours is somewhat 
better, it could still be described as anemic. Over the last 
decade, network carriers have reported over $60 billion in net 
losses. Since deregulation, there have been over 180 airline 
bankruptcies. Historical greats such as Pan American, TWA, 
Eastern are extinct. Thousands of employees have lost their 
jobs, shareholder value has been erased, and communities have 
suffered. The industry is broken and badly in need of an 
overhaul. Continuing down the well-traveled path of economic 
irrationality does not bode well for the traveling public, 
shareholders, or for the long-term interests of airline 
employees. It is incumbent on us to find rational solutions.
    I believe that a properly executed merger can be a better 
solution for the industry than consolidation by failure. Going 
third in this round of airline consolidation provides an 
opportunity to examine what has worked and what has failed. It 
is clear to see that the differences between marginal success 
and real success can be tied directly to labor and, more 
specifically, pilot labor.
    In a merger, it is not the executives, the bankers, or the 
lawyers who assume the risk. It is the employees, and it is 
labor. If we must carry the risk, we must share in the rewards.
    I cannot guarantee that this merger will be successful. But 
I can, with all certainty, predict its downfall if our pilots 
do not support the path our managements have chosen.
    The merger is expected to produce over $1 billion in annual 
synergies. If the merger is successful, that success will be 
determined by the strength of the new entity, the value added 
to its shareholders and, even more importantly, by the pride of 
the airline's labor force. This pride can only be regained by 
first returning to labor what has been lost through years of 
concessions.
    As irrational as it is to continue to foster a failing 
industry, it is equally as irrational to use the benefits 
derived from a merger to simply enrich those who put the deal 
together or to continue to throw good money after bad with ill-
conceived business plans that reward only those at the top.
    It is also important that this merger provide benefits for 
passengers. We should use this opportunity to reexamine 
subcontracting outsourcing. When a passenger books a trip with 
Continental from Houston to Newark and then beyond, they have 
an expectation that the entity they purchased the ticket from 
is responsible for their travel experience.
    Network carriers should be operational airlines, not merely 
ticket agents. Our passengers have a right to receive one level 
of service and one level of safety from the beginning of their 
journey to their final destination. To achieve that single 
platform experience, flights must be under the operational 
control of the network carrier and, therefore, be crewed by 
pilots working under a contract with that carrier.
    As Continental employees, we bring an award-winning culture 
of customer service to an industry marked with sharp declines 
in customer satisfaction. We bring strong job protections that 
limit the outsourcing of flying to the lowest bidder. If done 
in the right fashion, this merger can bring the best of 
Continental to the United name.
    In closing, I would like to remind you that the Continental 
pilot group did not search out or solicit this merger. We are, 
however, cognizant of the fact that, if done correctly, there 
is an opportunity to create a great airline, one enriched by 
Continental's culture, with a route structure capable of 
transporting customers to almost anywhere in the world and a 
pilot group unmatched in professionalism and experience.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Pierce follows:]
                    Prepared Statement of Jay Pierce



                               __________

    Mr. Johnson. Thank you, Mr. Pierce.
    Ms. Morse.

  TESTIMONY OF WENDY MORSE, CAPTAIN, CHAIRMAN, UNITED MASTER 
 EXECUTIVE COUNCIL, AIR LINE PILOTS ASSOCIATION, INTERNATIONAL

    Ms. Morse. Good afternoon, Mr. Chairman, Ranking Member 
Smith, and other Members of the Committee. We have more than 
7,700 active and laid-off pilots at United Airlines, and I 
appreciate the opportunity to speak before the Committee 
regarding the proposed United/Continental merger.
    Over the past decade, the airline industry has experienced 
the worst economic storm in the history of commercial aviation. 
An unprecedented series of financial shocks have taken their 
toll on airline service and on employees. Bankruptcies, 
employee layoffs, contractual concessions, and outsourcing have 
all been well chronicled.
    The proposed merger between United and Continental 
represents not only an opportunity for both airlines but a 
possible sea change in the economic direction and customer 
satisfaction for the airline industry. How this merger is 
handled will determine whether it is change for the better.
    The choice could not be clearer, and recent history of 
airline mergers provides a vivid picture of which path to 
choose. We are not traveling down uncharted territory. The 
obvious path to success, should it be selected, has already 
been established. The advantage of the knowledge of what has 
worked and what hasn't worked must be recognized.
    The Delta/Northwest merger, in which the company worked out 
a mutually satisfactory contract with the pilots, has been a 
resounding success. It has exceeded initial estimates for 
financial synergies, leading to a more viable company that 
provides greater service for the flying public and provides 
greater employment certainty for its employees.
    The America West/US Airways merger, in which management 
failed to negotiate contract terms in advance, is still run as 
two separate companies. Mired in lawsuits, America West/US 
Airways has failed to realize the advertised synergies, even 
though the merger took place more than 5 years ago, and 
continues to have its share of unresolved labor issues, which 
benefits neither the company nor the consumer.
    One axiom in the service industry stands as a beacon of 
truth. Take care of your employees. Ultimately, they will take 
care of the customers, and the business will take care of 
itself.
    It is imperative that the combined United/Continental 
establish a management team not only capable of running the 
airline well but one that also cultivates a culture where this 
combined entity provides a revenue and capital generation for a 
great product.
    In order for this merger to be successful, there must be a 
joint collective bargaining agreement with assurances for 
wages, working conditions, and job protections that are 
commensurate with the professionalism that our pilots exhibit 
each and every day.
    Thanks to the professionalism, commitment, and financial 
sacrifice of the pilots and other employees, our airline has 
weathered numerous challenges and now flourishes, but there are 
still challenges ahead.
    One of the biggest for the pilots of United and Continental 
and, indeed, for the airline pilot profession is the industry's 
continued drive to outsource as much flying as possible to an 
ever-shifting collection of below-cost subcontractors. Last 
year, United Airlines laid off 1,437 highly experienced pilots, 
their jobs outsourced to these low-cost subcontractors. The 
average United Airlines passenger has only a 50/50 chance that 
their flight is actually being operated by United Airlines. 
This philosophy which puts profit ahead of the safety of the 
traveling public must come to an end.
    While airline executives have been on the Hill saying all 
the right things seeking approval, I speak for the United 
pilots when I tell you that our contributions must be 
recognized in order for this merger to be successful and the 
synergies to be realized. We ask that as you consider the 
benefits this transaction will have for the industry and for 
consumers you also measure whether managerial actions are 
consistent with their words.
    United and Continental managements now stand at the 
threshold of what could be a great airline, one that sees 
sustainable profits and will also provide unmatched service to 
our customers. A combined United/Continental could establish a 
new paradigm in commercial aviation, one where management and 
labor work together to establish a solid, profitable airline 
where employees are properly compensated and where job security 
is not a constant concern.
    As key stakeholders, the United pilots stand ready to 
embark on this new business opportunity. Our favorable 
participation will lead to a stable, sustainable airline. This, 
in turn, will produce an unprecedented level of success for 
United stakeholders and an exemplary level of service for the 
flying public.
    Thank you.
    [The prepared statement of Ms. Morse follows:]
                   Prepared Statement of Wendy Morse



                               __________

    Mr. Johnson. Mr. Swelbar.

TESTIMONY OF PROFESSOR WILLIAM S. SWELBAR, PROFESSOR, RESEARCH 
     ENGINEER, DEPARTMENT OF AERONAUTICS AND ASTRONAUTICS, 
             MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    Mr. Swelbar. Thank you.
    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to speak in support of the merger of Continental 
and United Airlines today. For the network carriers like United 
and Continental, this round of consolidation is as much about 
preparing to compete with the world's other big carriers for 
international traffic as it is about competing with low-cost 
carriers in the domestic market.
    Despite the footprint established by the low-cost carriers 
that is now national in scope, it is the network carriers that 
connect the smallest U.S. markets to the globe's air 
transportation grid.
    I am going to debunk five myths I have heard said about the 
merger of the United and Continental.
    One, overlapping routes and higher fares. There are just 15 
nonstop overlapping routes flown by United and Continental. 
None of the 15 routes would be a monopoly United route after 
the proposed merger. Numerous connecting options are present in 
each of the 15 routes as well. The U.S. market should not fear 
end-to-end network consolidation like Delta/Northwest in the 
proposed United/Continental merger.
    The low-cost carrier segment of the U.S. airline industry 
would regale in the fact that the network carriers would price 
well above the market, as was the case in the late '90's and 
the early 2000's. Why? Because it would serve as the catalyst 
for their renewed growth that would come at the expense of the 
network carriers yet again.
    The market has demonstrated time and again that where 
competition is vulnerable a new entrant will exploit that 
vulnerability. Where there are market opportunities, there will 
be a carrier to leverage that opportunity, and where there is 
insufficient capacity, capacity will find the insufficiency.
    Two, start of another big merger wave. Each merger case 
should be considered on its own merits. Moreover, the concerns 
are most relevant in highly concentrated industries. The U.S. 
domestic airline industry will remain fragmented should the 
proposed merger be proposed, as seven airlines will have at 
least a 5 percent market share.
    When thinking about airlines in a global context, no one 
firm has a 5 percent market share of the global market. The top 
10 firms producing mobile handsets comprise 85 percent of their 
industry, the top 10 automotive manufacturers make up 76 
percent of their industry, and the top 10 container shipping 
firms equal 63 percent of their industry. Yet the world's 10 
largest airlines make up only 36 percent of the global airline 
industry. These define a fragmented industry prohibited from 
operating as other global industries, not a concentrated one.
    Three, hub closures and flight reductions. The fear mongers 
would have us believe unequivocally that there will be 
reductions in flying, the dislocation of small communities from 
the global airline map, and even hub closures because of 
consolidation.
    In the case of this merger, there has been much speculation 
about the future of Continental's Cleveland hub. There is 
nothing that I can see from this merger that would make 
Cleveland redundant. The answer to Cleveland remaining a 
critical point on the combined carrier map will have everything 
to do with the condition of the local Cleveland economy, as 
well as the price of oil, and, little, if nothing to do with 
the decision to merge.
    Four, employee and employment disruptions. Since 2001, the 
industry has shed nearly 140,000 jobs. But 400,000 plus good 
jobs remain, where wages and benefits average over $81,000 per 
year per full-time equivalent.
    Consolidation is not the culprit of lost airline jobs or 
declining airline wages. Airlines were left with little choice 
but to restructure, given the changed revenue environment. 
Unlike other rounds of consolidation that focus primarily on 
network scope, scale, revenue, and cost synergies, this round 
is different. Now the industry is also looking at the balance 
sheet. Consolidated carriers promise more stability to 
employees and communities that benefit from the combined 
strength of the respective balance sheets.
    And, five, re-regulate. Some suggest that re-regulation of 
the industry will improve the economic well-being of certain 
stakeholders. Isn't a goal of policymakers to maximize the 
number of good-paying jobs?
    The airline business is best characterized as a highly 
priced, elastic product. I firmly believe it would harm the 
industry by causing it to contract further as prices rise as 
inefficient costs are passed through to the consumer. Simply 
put, the network carrier model of the '80's and '90's does not 
work in today's environment. Consolidation is a logical step in 
this highly fragmented domestic and global airline industry to 
better weather the financial challenges that have caused years 
of economic pain for many stakeholders in a rising tide of red 
ink.
    Thank you.
    [The prepared statement of Mr. Swelbar follows:]
                Prepared Statement of William S. Swelbar



                               __________

    Mr. Johnson. Thank you.
    Mr. Roach.

    TESTIMONY OF ROBERT ROACH, JR., GENERAL VICE PRESIDENT--
TRANSPORTATION, THE INTERNATIONAL ASSOCIATION OF MACHINISTS AND 
                       AEROSPACE WORKERS

    Mr. Roach. Thank you, Mr. Chairman and Ranking Member 
Smith, Members of the Committee, for the opportunity to speak 
to you today.
    My name is Robert Roach, Jr., General Vice President, 
International Association of Machinists and Aerospace Workers, 
the largest airline union in North America.
    The Machinists union represents more than 100,000 airline 
industry workers. Twenty-seven thousand would be affected by 
this merger. Employees at United, Continental, Air Micronesia, 
a regional partner, Express Jet could be adversely impacted.
    We cannot look at the United/Continental transaction in 
isolation, as US Airways has already announced their merger 
hopes after this transaction is completed.
    The airline industry has been in turmoil since the passage 
of deregulation in 1978. Since 1978, 150 low-cost carriers 
began operations, but less than a dozen are still providing 
service today.
    More than 100 communities have lost all commercial service 
in the last 10 years. The industry is crying out for sane re-
regulation. There are many who argue that re-regulation would 
be not in the best interest of the industry. But let's look at 
the banking industry, where lack of regulation almost caused 
the doom of our country. Let's look at the oil industry where 
there's millions of gallons of oil flowing in the Gulf of 
Mexico, and now Congress is debating re-regulation or better 
oversight. This industry is crying out for sane re-regulation. 
Maybe we should take a step back and not rush to judgment or 
consolidation.
    Our concern is that we are creating airlines that are too 
big to succeed and once again resulting in taxpayer bailouts. 
It is time to seek a new vision for the future of air 
transportation in the United States.
    Albert Einstein said insanity is doing the same thing over 
and over again, expecting a different result. We can close our 
eyes and believe that repeating the same mistake for 30 years 
will eventually bring different results or we can effect real 
change and have an efficient, competitive air transportation 
industry.
    The long-term cost of underpricing tickets is too extreme. 
Pan American, TWA, Eastern, Northwest all survived for more 
than half a century but could not endure the insanity of 
cutting prices to eliminate competition.
    We have met both airlines jointly and separately since the 
merger has been announced. However, IAM members still have many 
questions unanswered and concerns that need to be addressed. To 
the carrier's merit, they have indicated they are prepared to 
provide us all the information that we need, but at this point 
we do not have that information, and the information has not 
been forthcoming.
    The merged carrier United and Continental will start out 
with a $13.8 billion debt. What is the business plan to deal 
with that debt structure? Will the merged carrier have any 
choice but to eliminate hubs in order to avoid competing with 
itself? What happens to Cleveland? What happens to Washington 
Dulles? Will the merging of these carriers and wholesale 
reshaping of the industry destroy competition, harm consumers 
on routes throughout the United States? As details about the 
combined carrier's business plan emerge, it must be closely 
scrutinized.
    The IAM believes that all employees deserve a defined 
benefit pension plan, but we are concerned that employees could 
lose defined benefit pension plans as a result of this merger. 
Carriers have admitted that homogenizing pensions are a complex 
issue; and although they have given it much thought, they did 
not know how it would be resolved.
    The Machinists Union would not allow our members' 
retirement security to become a casualty of this merger. Some 
past versions have resulted in devastating effects for 
employees. US Airways and America West are still operating as 
two separate airlines. Although there are public reports to the 
contrary, Northwest and Delta are not fully integrated and 
having representation issues.
    Myself personally worked for TWA, and as a result of the 
merger to America West I lost my seniority, along with tens of 
thousands of other employees; and those employees, 
unfortunately, do not have jobs today because they were placed 
on the bottom of the seniority list by American Airlines and 
the surviving union. And, today, those people have no health 
insurance, and they lost their pensions.
    But the same remarks that were made to the employees of TWA 
have been made today by CEOs of United and Continental and the 
same remarks that were made by the CEOs of Northwest and Delta 
and the same remarks were made by the CEOs of US Air and 
America West.
    As a result of this, as this proposal moves forward, the 
Machinists Union ask the regulators to take the merger's impact 
on the employees into consideration. The combined carrier must 
offer employees more stability and opportunity than there are 
available at the two independent airlines. The merger cannot be 
at the expense of workers who have already sacrificed to keep 
these companies afloat. United and Continental need to 
demonstrate how the proposed merger would benefit employees, 
consumers, and the cities and States the airlines currently 
represent.
    Thank you for the opportunity to speak to you today. The 
Machinists Union recognizes that it is in the Nation's interest 
to have a safe, reliable, competitive, profitable air 
transportation industry; and we are committed to working with 
Congress, Departments of Justice and Transportation to achieve 
that goal.
    I look forward to your questions.
    [The prepared statement of Mr. Roach follows:]
                Prepared Statement of Robert Roach, Jr.



                               __________

    Mr. Johnson. Thank you.
    And last but not least, Ms. Friend.

   TESTIMONY OF PATRICIA A. FRIEND, INTERNATIONAL PRESIDENT, 
             ASSOCIATION OF FLIGHT ATTENDANTS--CWA

    Ms. Friend. Thank you, Mr. Chairman and Ranking Member 
Smith, for giving us the opportunity to testify here today.
    The voices of the workers often take a back seat in these 
hearings and in public pronouncements about the benefits of 
airline mergers. I am here today to give those workers a voice.
    As a United flight attendant for 43 years and the President 
of AFA-CWA for 15 years, I have had a unique perspective on the 
dramatic changes that have reshaped the commercial aviation 
industry and eliminated thousands of jobs.
    Lately, I have listened to airline CEOs testify before this 
Congress about the need to consolidate the industry in order to 
achieve a sustainable business model. After hundreds of airline 
bankruptcies, thousands of employee furloughs, devastating pay 
and benefit cuts, the destruction of pensions, and 32 years of 
deregulation, it seems that airline management has finally 
figured it out, albeit in the worst possible fashion, that our 
Nation needs a stabilized and a rational aviation industry.
    Mr. Chairman, the Nation's flight attendants and all 
aviation workers also need a stable industry. Consumers are 
rightfully concerned that airline mergers will lead to higher 
fares and reduced service. We agree. But we also recognize the 
reality that airline fares must increase in order to stabilize 
this industry, provide a robust air transportation system, and 
provide more stable employment for thousands of aviation 
workers.
    To strike this balance between a stable industry and 
reliable air service, we assert today that the increase in 
consolidation activity requires appropriate regulatory 
oversight to protect the interests of employees and passengers.
    While some protections are in place today for consumers and 
communities, since deregulation, there are virtually no 
protections for airline workers. Of all the well-developed, 
pre-deregulation rules of the Allegheny Mohawk Labor Protective 
provisions, only one exists today, a provision establishing 
basic seniority protections in the event of a merger.
    After deregulation, Congress was concerned that the massive 
post-deregulation restructuring of the industry would displace 
large numbers of employees, so in order to assist laid-off 
employees, they added the Airline Employee Protection Program 
to the Deregulation Act. Unfortunately, the almost 40,000 
employees who lost their jobs in the wake of deregulation never 
received the benefits that Congress promised, since funding was 
never authorized for the benefits.
    As Congress looks into the impact of mergers on employees, 
we hope it will look at the failed EEP as a framework to 
provide meaningful protections to workers in the future.
    As we have testified in the past, we are not proposing to 
re-regulate the industry, but we do think, at a minimum, 
something needs to be done to shield workers from the harshest 
effects of this merger and future mergers.
    So what can the workers at United and Continental expect as 
they combine their work force and route structure?
    While management has provided information to us that is 
otherwise publicly available, management has not been so 
forthcoming about critical and future business plans. I call on 
this Committee to compel United and Continental management to 
provide the information on their plans for current United/
Continental employee base and hub operations.
    We also ask the Committee to consider the impact this 
merger may have on the contract negotiations under way between 
the Association of Flight Attendants--CWA, and United Airlines. 
For almost 6 years, the flight attendants at United have been 
working under a collective bargaining agreement negotiated 
while the company was in bankruptcy. They sacrificed nearly 
$2.7 billion in salary and benefit concessions, in addition to 
the loss of their pension.
    We ask your help to ensure that the current contract 
negotiations are satisfactorily resolved before this merger is 
finalized. We will not allow the negotiation process at United 
to be delayed as a result of this merger. The employees at 
United made deep sacrifices to keep the company flying, and it 
is time for the workers to share in the rewards.
    While much will be made over the coming months about the 
impact of this merger on consumers and communities, I urge you 
to remember the hundreds of thousands of airline employees 
across this country. Keep us in mind as you review this merger 
and the impact it will have on our lives and our families. We 
are the ones who have the most to lose, and we have the least 
protections.
    I thank you for your time and look forward to your 
questions.
    [The prepared statement of Ms. Friend follows:]
                Prepared Statement of Patricia A. Friend




                               __________
    Mr. Johnson. Thank you, Ms. Friend.
    Now we will have a round of questions for the witnesses 
from the panel, starting with myself.
    Mr. Tilton and Mr. Smisek, my first question is for you two 
to explain. You have represented that this merger is not 
necessary for your companies but will increase efficiencies and 
competition and provide a platform to build a financially 
stable company. What is the profitability of your respective 
airlines, and has it increased or decreased over the last 
decade? And how much do we expect your revenue to increase as a 
result of the merger?
    Mr. Smisek. Let me start, please.
    At Continental, we've lost over a billion dollars since 9/
11. Last year, we lost $282 million. This merger is necessary 
for Continental.
    Our board examined this merger, taking a look at our future 
as a stand-alone entity and our future combined with United 
Airlines. Our future as a stand-alone entity is one in which we 
will, as far as we can see, eke out a hand-to-mouth existence. 
That is not a future I want for my co-workers. That is not a 
future I want for the consumers. That is not the future want 
for communities. That is certainly not the future I want for my 
shareholders.
    So this merger is indeed necessary for Continental; and it 
will provide us a platform, we believe between $1 and $1.2 
billion of synergies, principally revenue synergies, with which 
to achieve and sustain profitability.
    Mr. Johnson. So are you saying that you expect the combined 
airline to generate a profit of about $1.2 billion?
    Mr. Smisek. No. No. It will generate a set of synergies, 
both revenue and cost efficiencies, that we estimate between $1 
and $1.2 billion. We would anticipate and hope that the carrier 
becomes profitable. There are one-time merger costs, of course, 
to do a transaction like this. But you take a look from where 
you would be on a steady state basis and add between $1 and 
$1.2 billion of additional value on an annual basis.
    Mr. Johnson. How would that be generated?
    Mr. Smisek. Principally, it would be generated through 
between 800 and $900 million of revenues, principally from 
increasing the business mix, that is, the number of business 
passengers on the aircraft. It is not predicated on fare 
increases. It is not predicated on capacity reductions. It is 
predicated on increasing the business mix and also optimizing 
the fleet across our network of 10 hubs.
    United has optimized its aircraft for its route structure. 
We have optimized ours for ours. When you put them together, 
you can reallocate those aircraft and generate additional 
revenues.
    There will also be about $2 to $300 million a year in cost 
savings. Those will come from a unified marketing budget, 
savings in information technology, reductions of redundant 
overhead in corporate headquarters.
    Mr. Tilton. Let me take sort of a different side of the 
question, Mr. Chairman. As a number of the witnesses have 
suggested, the industry has experienced shock after shock after 
shock. The industry hasn't been profitable. Our two companies 
haven't been profitable.
    Mr. Johnson. What about United? Has it been profitable?
    Mr. Tilton. No. No. So our last year of profitability, Mr. 
Chairman, was 2007. So it is a very comparable situation to 
Continental.
    This year, on the basis of the work that Mr. Smisek 
identified a moment ago, mentioned a moment ago, both companies 
are benefiting from the improvement in the economy which is 
offset a good bit by the high price of oil. But, nevertheless, 
we are experiencing some return of revenue performance but not 
a return in revenue performance at the levels of 2007 for the 
financial crisis.
    Mr. Johnson. How much do you expect revenues to increase as 
a result of the merger?
    Mr. Tilton. So, Mr. Chairman, a good way of looking at that 
was, of the $900 million that Mr. Smisek mentioned, 55 percent 
of that would be for my company's account and 45 percent of it 
would be for his company's account for the shareholders of the 
two companies. And, of course, after the new company is 
created, the $900 million is for the new company.
    Mr. Johnson. You put two companies together, one $16 
billion, the other $12 billion; $28 billion. Now you are 
talking that you will generate $900 million, approximately, in 
profits, and that will come from increased first-class business 
and through other means. Is it just the fact that it is bigger 
means it will generate more money, or is it the economy will 
improve? What is it that is going to cause the profits to go 
up.
    Mr. Tilton. First of all. That $900 million that Mr. Smisek 
spoke to is not profit. That is revenue. That is revenue 
improvement that has to find its way to the bottom line before 
it becomes profit.
    Mr. Johnson. Revenue improvement.
    Mr. Tilton. It is simply improvement in revenue driven by, 
to your question, the flexibilities that we will now have to 
offer corporate customers, the combined network that we can 
compete upon. So said simply, in New York where United 
previously would find it very difficult to compete for 
corporate customers such as the financial institutions, against 
a company such as Delta, the newly created Delta, with the 
creation of the new United--because we didn't have a 
significance presence--United in New York bringing Continental 
and its hub in Newark together with our hubs in Chicago, in 
Denver, in Washington, in San Francisco and L.A., will allow us 
to compete for that business which gives us a higher level of 
revenue.
    It will also allow us to take our 700 aircraft and fly them 
on the appropriate routes across the new network.
    Mr. Johnson. All right. Thank you.
    Professor Bush, what are the key lessons that should be 
taken from the competitive impact of the 2008 Delta-Northwest 
merger and how can those lessons be applied to ensure that 
competition in the airline industry is not harmed by this 
proposed merger?
    Mr. Bush. I think there are a couple things that we need to 
keep in mind with respect to the Northwest-Delta merger; and in 
fact, this one as well. First of all, when we look at airline 
competition, it is not just about the nonstop city-pair 
anymore. In fact, these two gentlemen have spoken about 
competition for corporate contracts and network effects among 
the carriers in this industry that are as important as nonstop 
city-pair competition.
    So when we look at these mergers, we need to look at 
nonstop city-pair competition, connect competition, network 
competition--and that includes competition for corporate 
contracts and things of that sort. And in that context, low-
cost carriers cannot mitigate anticompetitive effects from 
those transactions from these mergers because they aren't due 
any large degree network carriers and their frequent fliers 
programs are not as robust, their networks are not as robust, 
and things of that sort.
    And when we talk about things of revenue synergies of 800 
to 900 million and we are talking about a more robust customer 
demand, in order to get that revenue enhancement, that has to 
come on the back of either a reduction in some capacity or in 
some increase in fare classes, and that means to the detriment 
of those who of us who sit in the back of the airplane.
    So we have to look at these in terms of network effects and 
not just nonsubisdy pair competition.
    Mr. Johnson. Thank you. My time has expired.
    I will now turn to Mr. Smith for his questions.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Smisek, you may have already answered this question 
implicitly, but I would like to ask it more directly. And that 
is, do you think that Continental is big enough today to 
compete with other airlines like British Air Iberia? You have 
implicitly answered that question because of your losses, but I 
would like you to elaborate a little bit on that.
    Mr. Smisek. Congressman, this merger will permit us to be 
big enough to succeed. We compete on a global scale, on a 
global stage. Many people think of the U.S. airlines as 
competing just, for example, with Southwest--which we do; Jet 
Blue, Frontier, airlines like that. But we at Continental are a 
global airline. We compete on a global scale with not only the 
British Airways Iberias, Air France, Lufthansas, the 
Singapores. Everyone. It is across the globe we compete.
    Mr. Smith. You can compete as a merger but not alone.
    Mr. Smisek. We can be a much more effective competitor on a 
global scale with an integrated global network where we can 
attract and retain business travelers, we can attract and 
retain leisure travelers. We can offer industry-leading 
frequent flier programs. We will be a much more effective 
competitor as a larger carrier than we would be on a stand-
alone basis.
    Mr. Smith. Mr. Smisek, the big question everyone has is how 
do the consumers come out of it? What benefits do you see for 
consumers if the merger were to take place? And Mr. Tilton, if 
you will go first.
    Mr. Tilton. Thank you. As we have said, we have seen 
consumers benefiting from the continued service to the 148 
small communities that we are going to be able to continue to 
be able to serve. We hope to be able to serve even more small 
communities by virtue of the combination of our hubs. By having 
the flexibility to fly more and more consumers directly 
connected, seamlessly affected by one carrier across--now, in 
addition to the hubs that I described a moment ago, the 
addition of Newark and Cleveland and Houston to that U.S. hub 
structure, we really think the efficiencies that we are going 
to gain with those eight hubs across the United States will be 
an enormous benefit to consumers.
    Mr. Smith. Mr. Smisek?
    Mr. Smisek. With a combined airline, we will have the 
financial capability to continue to invest in our product, 
things like audio/video on demand, flatbed seats, DIRECTV, in-
seat power, modern fuel-efficient aircraft, better for the 
environment. We will be able to offer a broad network so there 
will be one-stop shopping for consumers.
    We are in an alliance. We are a very proud member of the 
Star Alliance, and the Star Alliance has been very good for us. 
It has been necessary to restore us to profitability.
    But again with an alliance, there are seams and there are 
different carriers taking the passengers and not necessarily 
consistency of service. With one carrier, it will have 
consistency of service and it will be excellent service.
    The other thing we will offer is an industry-leading 
frequent flier program so there will be more ways to earn 
miles, more ways to redeem miles for the consumer, which is 
also a consumer benefit.
    Mr. Smith. Mr. Smisek, those of us from Texas worry, of 
course, about jobs. As a result of this merger, can you make a 
calculated guess as to how many downtown Houston jobs we might 
lose? I know there is going to be some shuffling around.
    Mr. Smisek. We haven't determined that. We are early in the 
integration planning process. There will be some job loss in 
downtown jobs in Houston, just as there will be some 
headquarters losses in Chicago. And we haven't determined that. 
I can tell you that I would anticipate the total number of job 
losses, which are headquarters jobs, in this merger will be 
relatively small compared to the 86,000 people that will be 
with the combined carrier.
    Mr. Smith. When you say ``relatively small,'' do you mean 
less than a hundred people?
    Mr. Smisek. We haven't determined that, but I would suspect 
it will be bigger than a small bread box. Maybe not less than a 
hundred jobs. I can't tell you right now. Compared to the total 
jobs that we have at the carrier, it will be a relatively 
modest number of jobs.
    Mr. Smith. May I ask unanimous consent to put into the 
record a number of letters that I received? In fact, I received 
more than 250 letters of support for this transaction, and I 
would like the official suppliers, customers, businesses, and 
service organizations from around the country--but rather than 
submit all of these for the record, I would like to just submit 
those from five Governors from California, Colorado, Illinois, 
Hawaii and West Virginia, and 20 mayors of major cities, 
including 9 in Texas for the record.
    Mr. Johnson. Without objection.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Johnson. We will next proceed to Congressman Scott.
    Mr. Scott. Thank you. Mr. Tilton, there are a number of 
carriers that are considered low-cost carriers. How does your 
cost structure and that of Continental differ from the low-cost 
carriers' cost structure that allows them to provide much lower 
fares compared to yours?
    Mr. Tilton. Congressman, in many instances, actually, we 
match their fares, as you are probably aware. So in markets, 
let's say in Denver where across certain routes we are competed 
directly by companies as good as Southwest Airlines--and 
incidentally, Southwest Airlines is getting into the business 
of frequent flier participation, into the business of code-
sharing with a Mexican partner. So they are adding a little bit 
of complexity to their business model as well, so their cost 
structure is going up a little bit.
    That having been said, as Jeff and I have often said, a 
hub-and-spoke structure is an intrinsically costly structure. 
And the maintenance of a hub, if you in fact have one in the 
system, is probably the most significant cost differentiator 
for a hub-and-spoke carrier relative to a point-to-point 
carrier where you don't have the responsibility for the 
maintenance, the management, the stewardship of something, such 
as Newark or Houston or Chicago or San Francisco.
    We also fly, as you know, significantly offshore. So a 
significant part of our respective businesses is the 
international operations. And those wide-bodied aircraft and 
those long-haul flights are by their very nature much more 
expensive than Southwest.
    So as Jeff said a little while ago, only a segment of our 
business competes directly with Southwest, but it is an 
important segment of our business and we try to be as cost 
competitive there as we can so we can offer services to our 
markets that are competitive with Southwest.
    Mr. Scott. Are your costs lower when you are competing with 
Southwest, or does the competition bring down your costs?
    Mr. Tilton. No. Our costs are the same.
    Mr. Scott. And the prices are lower when you have 
competition?
    Mr. Tilton. Wherever we have competition, we try to remain 
relevant in the marketplace.
    Mr. Scott. Why should we not suspect that prices might not 
go up when you lose competition through the merger?
    Mr. Tilton. That is an excellent question. We are not going 
to actually lose competition. We and Continental overlap a 
little. In very, very rare instances we compete directly. One 
of the points that we made about this merger is the 
complementary nature of these networks. In my answer to the 
Chairman a moment ago, I was saying that we have very little 
presence that is competitive with Continental's in metropolitan 
New York. Continental has a very modest presence in Chicago. So 
in that regard, neither one of us is going to lessen 
competition.
    Mr. Scott. Mr. Roach, what will this merger do to the union 
contracts, jobs, and seniority?
    Mr. Roach. It can create a lot of turmoil. We represent 
eight different classifications on the combined carriers, and 
those have to be integrated--seniority integration, which is 
very difficult; contracts have to be negotiated. There are 
pension issues that have to be resolved, different pension 
plans, some are defined contributions.
    All of our members of the IAM have defined benefit plans. 
It is very difficult to put these--as America West-U.S. Air, we 
are still not fully integrated, as I said. Northwest-Delta is 
still not not fully integrated. It is very difficult to put 
these airlines together from an employee standpoint. And, 
again, we certainly want to argue or stand up for good 
contracts.
    I think the issue beyond a good contract is survivability, 
and that is the information we are requesting from the combined 
carriers, because having a good contract, as I said before, and 
no job, really doesn't mean anything. So we want to make sure 
the carrier is going to be around. And we have asked for 
information. They said the information was forthcoming.
    But merging America West-U.S. Airways 5 years after the 
fact are still apart, Northwest-Delta, 2 years, and TWA has 
disappeared totally and employees are gone.
    Mr. Scott. Mr. Smisek, you talked about keeping the jobs 
alive. Both United and Continental have had financial problems 
in the past. Why would we think that a combined combination of 
the two would make it financially more reliable?
    Mr. Smisek. We expect this merger to generate, as I said 
earlier, between $1 and $1.2 billion of net annual synergies. 
That is a considerable amount of money. And we believe that 
this merger will put us in a position to be profitable.
    I have also made it clear to all of the work groups that I 
intend to share appropriately in the synergies of this merger 
with the workers whether they are represented by unions or not.
    Mr. Johnson. Thank you, Mr. Scott.
    Next we will hear from Mr. Poe.
    Mr. Poe. Thank you, Mr. Chairman. I appreciate you all 
being here.
    Mr. Smisek, the four things you mentioned are exactly the 
four issues that concern me. Having represented probably 14,000 
of the employees in the Houston area that have worked with 
Continental, I am concerned about the employees, the consumers, 
the competition, and of course the community, exactly on point 
with you. I hope we resolve and come up with the same answers 
as a solution.
    Flying Continental, I think it is a great airline, 
wonderful customer service. The employees are great. New 
airplanes, clean airplanes. I had the opportunity to fly 
United. Don't want to be too offensive, but I don't like flying 
United. No good customer service, old planes, dirty planes. If 
I had a choice, I would rather take a stagecoach than fly 
United.
    My choice--this is my opinion. You got Continental, you 
have got United. How do we know we are going to keep the same 
level of expertise and confidence with a merger that I think 
Continental has right now?
    Mr. Smisek. Well, Congressman, look. We are very proud of 
the airline we have built at Continental, Congressman. And from 
Houston's perspective and from Cleveland's perspective, we need 
to look at this from where we would be on a stand-alone basis. 
What would the future be? People tend to take us and project us 
out from our past and expect that to be the future. That isn't 
the case as we become more globalized, and more of our business 
travelers are being stolen away by large global competitors.
    Houston will be better off in the long run with a merged 
Continental than it would have been had we stood alone. And in 
terms of the service levels, we intend--the management team, it 
will be a joint management team of Continental and United. We 
intend to inculcate at the combined carrier a culture of 
dignity and respect and direct and open and honest 
communication--what we call working together at Continental. 
And we have proven at Continental over the past 15 years that 
works, that generates great customer service.
    What you will find, Congressman, over time is this carrier 
is going to have a great product, great service brought to you 
by employees who are very proud to work at the new combined 
United. And I think you will be very satisfied with the product 
after we have merged, after we have integrated these two 
carriers. That will take some time. That will take 14-16 
months. When we have got these two carriers integrated, I am 
confident that we are going to have a great carrier that will 
have great service.
    Mr. Poe. How come Star Alliance won't work?
    Mr. Smisek. The Star Alliance has been very good for us. It 
is, however, insufficient. The revenues that we are generating 
from the Star Alliance are insufficient to restore us to 
profitability. All of the good things in life, all of the 
things that I want for Houston, all of the things that I want 
from my co-workers, all of the things I want from my 
communities that I serve throughout the world, and all of the 
good things I want for my consumers come from profitability.
    We have failed over the past decade at Continental. We lost 
over a billion dollars. That can't continue. And this merger 
will help us to restore profitability and to be able to invest 
in the product to provide great service.
    Mr. Poe. We want you to stay in business.
    Did you have a comment?
    Mr. Tilton. I do. There is no question that Continental 
among the carriers has the best level of customer service and 
they have for quite some time. And it is the target for all of 
us to aspire to. This last year, our company improved in 
customer service better than any of the other networks. It 
improved by some seven points. We have also been number one on-
time airline across the United States for at least 8 
consecutive months, and we were for the year in 2009.
    So we are very proud of our improvements. And there is no 
question but that Continental is going to bring a level of 
service, over time, better than we have had over that same 
time, but it is going to give United a target to shoot for.
    Mr. Poe. Maintenance. Maintenance facilities if there are a 
merger. Where is the maintenance going to be? Mr. Tilton.
    Mr. Tilton. So our principal maintenance facilities, across 
the United States. Our line maintenance is associated with all 
of our hubs and our spokes and stations.
    Mr. Poe. Let me ask you this, because we have a time 
constraint.
    Will there be more, less, or about the same maintenance at 
the Houston hub, if there is a merger?
    Mr. Smisek. I don't anticipate any changes to the 
maintenance, to either the heavy checks that we do for our 757/
200 fleet. As a matter of fact, we will be adding 757s, a 
considerable number, with United and the line maintenance that 
we do.
    Mr. Poe. One last question. Frequent flier miles. That is 
all the calls we get from the fliers. How is this going to 
affect frequent fliers?
    Mr. Smisek. I think that will be an improvement in the 
program because we are going to have a much larger frequent 
flier program. I think we will have new ways to earn miles, new 
ways to redeem miles. We haven't determined that because we are 
not merged yet, and so we haven't had the discussions that you 
would have to harmonize the frequent flier program.
    But we realize how important frequent flier miles are to 
customers. We realize how valuable they are to us in retaining 
customers. Our frequent flier program at Continental has won 
numerous awards. I would anticipate that the combined frequent 
flier program will be superb.
    Mr. Poe. That is what makes me nervous. Then there is the 
merger and then there is the decision on what to do with 
current frequent fliers and their miles and how you merge two 
different complete systems. So that is what makes me a little 
bit nervous.
    Mr. Tilton. We are going to have to compete with Delta in 
the context of their frequent flier program, which is a real 
beneficiary of the combination of Northwest and Delta, just as 
we compete with them in customer service in our transportation. 
We really want to create--and I don't think there is anything 
for a consumer to worry about with respect to the combining of 
the two frequent flier programs, because we want to be as good 
as the alternative, which would be Delta.
    Mr. Poe. I yield back, reluctantly.
    Ms. Jackson Lee. The gentleman's time has expired. I thank 
the gentleman for his line of questioning.
    Let me thank all of the witnesses who are here. This is an 
important process of oversight that our Committee has, and so 
each of you are appreciated for your presence here today.
    I want to particularly thank Mr. Smisek and Mr. Tilton 
because it is important to note that you have business 
decisions to make, and I appreciate you taking the line of 
questioning from Members in the spirit in which you are doing.
    I also appreciate our representatives from the different 
unions, our professor, and certainly two professors. I think 
one comes from the perspective of this Committee and one comes 
from a more policy-oriented position, and that is the right 
thing to do.
    What I do note, however, and it is the limitations of our 
Committee and it is not the fault of anyone, but as my 
colleague from Houston noted, the consumer is not at this 
table, the traveling public, nor do we have at this table the 
many municipalities who are frightened of what they might 
expect. Many of them, or some, have chosen not to be present, 
although I note one of my colleagues submitted some letters 
from a number of municipalities. But others who are directly in 
the line of fire are not present because they are waiting with 
bated breath to see who is going to be the winner in this 
process that we are moving forward on.
    Let me just indicate, as a matter of background to my 
questions, that we are developing a record that will be 
utilized or could be utilized by the Department of Justice, 
where they will be investigating whether the merger will limit 
competition and raise prices for customers as required under 
section 7 of the Clayton Act. But the Clayton Act has provided 
a degree of jubilation, because recent history has shown that 
findings of anticompetitive effects may still not be enough to 
stop the merger, to the dismay of the late President, Teddy 
Roosevelt.
    As the Department of Justice Federal Trade Commission 
horizontal guidelines have allowed potential increase 
efficiencies for mergers to trump the anticompetitive effects, 
I consider that to trump the real-life human effect.
    And it is clear, for example, that there are a total of 13 
nonstop routes where Continental and United overlap. If the 
merger goes through, 7 of those 13 will have no other 
competitor. With the reduced competition on those routes, 
passengers will have practically no alternatives, and the 
carriers with the near or actual monopoly will be able to 
increase prices with no consequences.
    So let me pose these questions and there is some industry 
language that I think is being used, might be financial 
language, and it is this whole question of annual revenues.
    So in your press release, in your testimony, you claim in 
your previous press release that the merger will create 800 to 
900 million in incremental annual revenues.
    How is it possible to achieve such an increase in revenues 
without doing one of the following: increasing fares for at 
least some of the classes of customers, while eliminating 
lower-fare offerings or reducing capacity, either by 
eliminating flights or reducing the gauge of the aircraft, or 
eliminating employees?
    Mr. Tilton.
    Mr. Tilton. Thank you, Congresswoman.
    As we have said, there are probably two significant 
components to the opportunity that combining our hub structure, 
our network and our fleets will provide us. We will be able to 
take the 700 aircraft of the combined fleet, including, beyond 
that 700, the aircraft that both companies have available to 
them through their partner relationships with regional 
carriers, to have our network planners position those aircraft 
on routes and the assignments of the aircraft, business 
assignments for the aircraft that are better than we are 
currently able to do by virtue of the limitations of our 
retrospective fleets.
    Said very simply, Jeff may well have the opportunity for 
larger aircraft out of Newark, but Jeff doesn't have aircraft 
of sufficient size in his current fleet to be able to take 
advantage of that. It may well be that I have a larger aircraft 
that I am using in another hub and flying it because I have it, 
but not actually taking full advantage of it. That aircraft 
might be moved to Jeff's employ out of Newark and we take the 
benefit of that.
    Ms. Jackson Lee. And increase the size of passengers that 
may be on the flight, increase the revenue?
    Let me move, then, to Jeff and ask a question. There is 
reference to incremental annual revenues of 200 million and 300 
million of net-cost synergies. So let me go back to the last 
part of my first question.
    I assume that these costs mean layoffs to some degree. How 
many do you expect to lose their jobs, and where?
    Mr. Smisek. Congresswoman, we have not determined the 
number of headquarters jobs that will be affected either in 
Houston or Chicago. There will be reductions in headquarters 
jobs. The vast majority of our employees will be effectively 
untouched by this merger, because we have so little overlap 
that some of my employees are not affected by this. We have not 
determined that yet.
    When we do determine it, because of our culture, we will 
tell our employees first and then we will tell the rest of the 
world. And we will be happy to inform all people.
    Ms. Jackson Lee. Can you explain the role of Continental's 
Cleveland hub and the optimizing of your fleet? Is it not the 
case that you will be reducing the number of routes at 
Cleveland?
    Mr. Smisek. All routes, including Cleveland, are subject to 
market conditions and traffic flows. I understand how important 
good air service is to the city of Cleveland. I have spoken 
with Mayor Jackson. I have met with him. I am going up again to 
meet with him and various members of the business community to 
see what we can do to maximize the demand for air travel in 
Cleveland.
    Recognize, as Professor Swelbar mentioned, when it comes to 
any hub, whether it is Houston or Cleveland or New York or 
Denver or San Francisco or L.A., it is a matter of the traffic 
flows, the local demands.
    Ms. Jackson Lee. So there would be a possibility of 
reducing routes at Cleveland.
    Mr. Smisek. There is a possibility of increasing routes in 
Cleveland or New York. It depends upon the economy. This is a 
dynamic business. There is change every day in this business. 
It is impossible to predict this business.
    Ms. Jackson Lee. With it being dynamic, you have the option 
of reducing routes.
    Mr. Smisek. Reducing and increasing.
    Ms. Jackson Lee. Mr. Bush, how would you respond to the 
explanation that has been given on, if you will, the 
incremental revenues and no possibilities or rare possibilities 
of layoffs under the $2 to $300 million proposal of synergistic 
savings?
    Mr. Bush. Well, there are a couple of important 
considerations.
    When we are talking about efficiencies in the merger of 
context, the efficiencies that the Department of Justice 
considers are those that are related to the merger. They are 
merger-specific. They cannot be achieved by other means without 
serious cost occurrences. I am not quite sure how the flight 
repositioning or the removing of aircraft from one hub to 
another is merger-related. I suppose you could lose aircraft. I 
suppose you could have some repositioning of aircraft within 
your fleet. I am not entirely sure how that by itself yields 
incremental revenue to the proportion that they purport.
    I am little troubled by the notion that they haven't 
thought about what jobs to cut yet they are claiming they can 
have 200 to 300 million in cost savings. It seems to me in 
order to make a claim that you are saving some money in 
efficiencies, let us get this right. Efficiencies are job 
losses. Cost savings, things of that sort. I don't see how you 
can claim you are going to have 200 and 300 million million in 
savings if you don't know where they are coming from.
    With respect to the Cleveland hub, I suppose it is true 
that city demand and market conditions locally do affect the 
traffic through a hub. But let us keep in mind that we have 
some idea about these kinds of things from prior mergers.
    You can look at what happened with American and TWA and the 
St. Louis hub and how well that hub is doing. We can keep track 
of what happens in Northwest and Delta and what happens in 
Cincinnati. It has not been the case that I can think of where 
we have actually seen large-scale improvements in these hubs 
that have competitive.
    Ms. Jackson Lee. Let me wrap up with these two questions. I 
hope to be able to pose these questions more extensively 
further, after my colleagues.
    But let me just ask all of the union persons, have you been 
engaged in any discussions with either United or Continental 
about your plans and your layoffs?
    Can I get a yes or no? Captain Pierce.
    Mr. Pierce. Yes, we have.
    Ms. Jackson Lee. And are those plans final and public?
    Mr. Pierce. They are not final nor public. We are 
negotiating as we speak.
    Ms. Jackson Lee. Are you comfortable with the progress? Are 
there concerns?
    Mr. Pierce. Cautiously, cynically optimistic.
    Ms. Jackson Lee. Captain Morse, excuse me.
    Ms. Morse. I would respond in the identical way.
    Ms. Jackson Lee. Mr. Roach.
    Mr. Roach. We have not had those discussions. We have 
requested that information, and we are hopeful that they are 
forthcoming.
    Ms. Jackson Lee. Ms. French.
    Ms. French. We have not had those conversations, and we are 
not that comfortable that they will be forthcoming.
    Ms. Jackson Lee. Mr. Smisek, this is directed to you. Will 
you personally commit to do anything you can to minimize the 
impact of a merger on your downtown employees and the hub 
employees at IAH?
    Mr. Smisek. There should be little to no impact on hub 
employees at IAH. As for downtown, I have made it clear to my 
employees that I understand not only job loss but moving, 
moving to Chicago, that I want to minimize that consistent with 
the needs of the enterprise. There are some jobs that need to 
be in Chicago, face-to-face jobs. I am, for example, moving to 
Chicago. Others where people work, for example, from home. We 
have a very large number of people who work from home at 
Continental. Also jobs that are principally computer-related 
jobs that can be done from anywhere. And I do not--I want to 
disturb as few lives as possible. I know how disruptive it can 
be. That said, there are some jobs that will --there are some 
that will need to be moved.
    Ms. Jackson Lee. Can you personally commit that you will 
minimize?
    Mr. Tilton. Yes.
    Mr. Smisek. Yes, of course I will.
    Ms. Jackson Lee. Mr. Tilton and Mr. Smisek, I would like 
you to provide us with your employee plan and their hub closing 
plan to this Committee.
    [The information referred to follows:]
    

    
                               __________

    Ms. Jackson Lee. I now will yield to Mr. Coble for 5 
minutes.
    Mr. Coble. Thank you, Madam Chairman. I had to go to the 
floor so I missed a good portion of this hearing but it is good 
to see Mr. Tilton and Mr. Smisek again. I saw them at 
Transportation and Infrastructure earlier this morning.
    Gentlemen, as I said to you this morning, I represent 
Greensboro, North Carolina, which includes the Piedmont 
International Airport. Let me ask you this: Will this merger--
how will this merger affect airports that have seen a decrease 
in passenger service as a result of the dismal economy? And if 
approved, would this merger provide the opportunity for 
communities like the one I represent to attract additional 
service?
    Mr. Tilton. Congressman, I see two potential benefits to 
communities the size of Greensboro, where perhaps neither of us 
today serve it as consistently or as often as the community 
might warrant. When we put the combined network together, we 
have the opportunity to fly the people of Greensboro over the 
combined hub structure as opposed to individually only those 
hubs that we had available to us previously, which gives us a 
much larger footprint and more efficiency and flexibility to 
connect the people of Greensboro against eight hubs, rather 
than five and three. I think that is significant.
    I also think that as the enterprise, the new company, 
becomes more cost effective, it may well be that the margin 
that Greensboro can afford us can be more attractive to us than 
it can be independently today.
    Mr. Coble. I am pleased to announce, as no surprise to 
either of you, that United and Continental provides service 
there now.
    Maybe you all touched on this already. How will the 
proposed merger affect the employees of the two companies? 
Wages, jobs, has that already been discussed today?
    No need to repeat that, then.
    Let me ask you one more question if I may. If the United-
Continental merger is approved, there will be just a handful of 
so-called U.S. Network airlines remaining. How will further 
consolidation of the Nation's other airlines affect competition 
and pricing in the airline industry?
    Mr. Smisek. Let me begin, Congressman.
    This merger will permit us to compete on a global scale and 
compete more effectively than we can today. You have to look at 
this where we would each be individually if we were not to 
merge. I think this will strengthen competition. It will permit 
us to compete with large foreign airlines which now control 
more than half of the trans-Atlantic traffic and more than two-
thirds of the trans-Pacific traffic. There is material 
competition in the U.S. Segment today. That competition will 
continue after this merger.
    This merger is not predicated on any price increases 
whatsoever. We do not even--I wish we could set prices. We 
don't. The market sets prices. And we do not set prices. And 
this merger will not affect prices. Despite my friend to my 
left, I think Mr. Swelbar has talked as well about how there is 
a significant amount of competition in this business, and there 
will be significant competition going forward.
    Mr. Coble. One final question. Which type of airline serves 
more small- and medium-sized communities? Discount airlines or 
network airlines, and why is this the case?
    Mr. Smisek. Congressman, network airlines are the only 
airlines that serve small communities. The reason for that is 
low-cost carriers rely on a very simplified fleet and they rely 
on point-to-point, largely local traffic base. And small 
communities do not have the local traffic base to support 
service of a larger aircraft. And so low-cost carriers do not 
serve, and I suspect will never serve small communities.
    The only carriers that serve small communities are network 
carriers like Continental and United. After this merger--we 
serve 148 small communities today, and after the merger we will 
serve 148 small communities. And there are 200 small 
communities throughout the United States that are served only 
by network carriers.
    Ms. Jackson Lee. I yield to the gentleman from Chicago, Mr. 
Gutierrez, for 5 minutes.
    Mr. Gutierrez. I am going to ask questions of the two CEOs.
    I would first like to ask about United. What is the total 
worth to your consumers in your frequent flier miles? If I were 
to sell them on the market, what would they be worth, 
approximately? A million? Ten million? A hundred million?
    Mr. Tilton. There is not a liquid market.
    Mr. Gutierrez. I understand that. You are the CEO. What are 
they worth?
    Mr. Tilton. I would say that--well, I do have a way of 
looking at it.
    So a frequent flier program exists----
    Mr. Gutierrez. What I want to get to--it is only 5 minutes. 
What is it worth? What is it worth if you had to limit it 
tomorrow?
    Mr. Tilton. A hypothetical; a billion dollars.
    Mr. Gutierrez. Thank you very much. Continental?
    Mr. Smisek. I have no idea.
    Mr. Gutierrez. You should know what something is.
    Mr. Smisek. There is not a liquid market so the question is 
a very difficult one to answer. I will tell you that the 
program is valuable to us.
    Mr. Gutierrez. You said we are going to find more ways to 
earn and more ways to use. Is it worth the same billion dollars 
as United Airlines?
    Mr. Smisek. I don't know.
    Mr. Gutierrez. Hundreds of millions of dollars? Thank you. 
It is amazing that you know the value of everything, I am sure, 
in your airline except frequent flier miles.
    Let me tell you why I am asking that question. I am asking 
that question because when I went to look up the mileage-plus 
rule summary for United Airlines, United Airlines reserves the 
right to terminate the mileage program without notice or 
regardless of how much you participate. You have the right of 
cumulative--boom. You have the right to eliminate a billion 
dollars of the consumer. It is a billion dollars. You stated 
that it was worth a billion dollars. I looked it up on United 
Airlines.
    Mr. Tilton. If I were to sell it for a billion dollars, it 
wouldn't be eliminated.
    Mr. Gutierrez. Let's not get cute here. You have a billion-
dollar asset.
    Mr. Tilton. I don't have that.
    Mr. Gutierrez. Yes, you do. You said the value to the 
American consumer was a billion dollars. That is on the record. 
I don't want them to go back and read what you said. You said 
it was worth a billion dollars. That is what you said. I said? 
What is this worth to the consumer? Something that you can 
terminate.
    Mr. Tilton. Right.
    Mr. Gutierrez. Fine.
    So why is it--because I think it is important that we don't 
like--before we allow you to merge, we don't protect the 
American consumer and their right to what you have stated is a 
billion dollars.
    See, those are the questions that I have as I look at this 
merger, because I know that people will come here and say well, 
Luis, it is good for Chicago, United is from Chicago. You know 
what I am interested in? I am interested in what is good for 
the American consumer. And we have just heard, Madam Chair, and 
we will hear from others, that the number-one complaint we get 
about the airlines is access to frequent flier.
    So when you come and you tout the great benefit, which you 
have stated is worth a billion dollars to the consumers, should 
they actually go about the business of using them, I think it 
is important that we discuss that area.
    The fact remains, Madam Chair, is that it is next to 
impossible to get a frequent flier use when you really need it.
    I know that the 5 minutes are up. So you guys took a lot of 
time just giving a value to something. I know. It is a good 
ploy on your part.
    But let me ask you another question, Mr. Tilton. Maybe you 
know this. Is part of your salary structure at United Airlines 
stock in United Airlines?
    Mr. Tilton. Ninety-five percent.
    Mr. Gutierrez. Ninety-five percent. So that means you made 
a lot of money in the last year. You are worth a lot more today 
than you were 52 weeks ago, and I only get that because I 
downloaded it off the Internet. That is, that the value of 
stock in United Airlines has increased 112 percent during the 
last 52 weeks.
    Mr. Tilton. To get to the point of origination of $3, it 
had to go down dramatically.
    Mr. Gutierrez. It was $6 a share 52 weeks ago. It is over 
$24 a share today. I mean, I looked it up. You could tell me 
that it is not so, but it is so.
    So let me ask you something. You really have a great 
motivation to make sure that that stock increases in value, 
right?
    Mr. Tilton. That would be true.
    Mr. Gutierrez. So you see, we are always talking about 
Members of Congress and our conflicts of interest, Mr. 
Chairman, or Mr. CEO of United, we are always talking about 
ours. You, too, I think, have a conflict also because when you 
make decisions about who you are going to cut and what salaries 
you are going to cut and what frequent flier miles you are 
going to cut and what pensions you will not--how would I say, 
to enter into agreement but then not pay out. The fact is that 
the CEO, the bottom line, since 95 percent, he has stated, of 
his salary is stock, I think that those decisions should be 
made by us also. I think we have a right to also intervene.
    You can laugh. You can laugh and you can think that it is 
not serious, because I know that you probably feel that you 
have got this one in the bag. But let me tell you something. At 
least one person will stand up here today on behalf of the 
machinist, on behalf of the pilots, on behalf of the flight 
attendants, and on behalf of the consumers of America. This 
isn't just about what is good for corporate America and the 
bottom line of what is good for the CEO of a particular 
airline. I think it is what is good for all of us together.
    I want United to prosper, to grow, and be strengthened, but 
I also want the workers and the consumers to be respected in 
their profit. And I would just love to see that their salaries, 
their pensions, would equal your salary and your pension, not 
in terms of the totality of the money--we will pay you more--
but at least they would see a 100 percent increase in their 
value in their pension and in their future.
    Ms. Jackson Lee. Mr. Issa.
    Mr. Issa. I hope the gentleman is not leaving. I am going 
to try to get him an answer.
    Mr. Tilton, you provide seats in return for miles for 
frequent fliers who use credit cards. Those are purchased from 
credit card companies for a price. If I have a 25,000-point 
redemption, and I get a ticket, what did the credit card 
company pay for those 25,000 points that were awarded?
    Mr. Tilton. It varies, credit card company by credit card 
company.
    Mr. Issa. Just give me the ballpark, so the ballpark is 
only for the record. Is it $200 or so, roughly? You are selling 
seats essentially in your mileage program and you are selling 
them for a price that probably----
    Mr. Tilton. We try to get it as close to market as we 
probably can.
    Mr. Issa. But it is a mean market because it is sort of an 
economy price. So there is a value. And that also fills seats 
for you because you charge double that later in the flight. So 
if it is not a very available flight, you double it. You get 
50,000 points for the same seat. So it is part of filling your 
seats sufficiently with a fixed amount of money per points, but 
twice as many points if you are down to the last few seats that 
both of your airlines want to fill more profitably, right?
    Mr. Tilton. That is correct.
    Mr. Issa. So you can't really price the frequent flier 
flights, you can't price it as much as show it is part of your 
revenue of filling your seats profitably.
    Mr. Tilton. That is correct. And its utility has an 
upgrading instrument and that type of thing.
    Mr. Issa. Mr. Tilton, you are going to become the non-
executive chairman and, Mr. Smisek, you are going to become 
president and CEO, right? So Mr. Poe is going to get the guy he 
likes running the company. I just want to make sure we have 
made it clear for the record how corporate mergers work, no 
matter who takes over who. We know who is going to be running 
the company.
    I am concerned about a few things.
    First of all, I look at the hub structure and I don't think 
there is a snowball's chance in the south of the center of the 
Earth that Cleveland survives. I think Cleveland gets phased 
out over time. You are not closing Chicago. So if you had to 
close one hub of nine or so major hubs, are you going to tell 
me here that it wouldn't be one of those in that concentration? 
Because you are not closing San Francisco, you are not closing 
L.A. You are not closing Denver. And the acquisition of a 
southern hub is crucial to the network, and United never had a 
New York hub of any substantial amount, so those are all 
staying.
    So what do I have left and which one would close?
    Mr. Smisek. Congressman, we don't have any intention of 
closing any hubs but that is going to be dependent on market 
demands.
    Cleveland actually has significant local demand for a city 
of its size. The future of Cleveland is tied very much to the 
future of Cleveland's economy. Cleveland will always have very 
good air service. Think of the flows west. We are very----
    Mr. Issa. I happened to have bought my Red Carpet 
membership initially when I was a Clevelander. I am well aware 
that United walked away and gave you those gates; that in fact 
you did a trade where you got Cleveland, which you wanted a lot 
of concentration in. They got the hell out. So it is basically 
prop service in there or light jet, and there was a separation 
because there wasn't enough room for two of you. I am just 
concerned there won't be enough room for one of you.
    Mr. Smisek. There are very few hubs in the United States 
where there is room for two. O'Hare is a hotly contested hub 
between American and United. L.A. Is quite fragmented for that 
matter, so is San Francisco, with low-cost carriers, I think, 
have close----
    Mr. Issa. I am going to get to low-cost carriers in a 
moment, or what I call value carriers. And I do 200,000 miles a 
year with one of your airlines, United. You have got the 
nonstop.
    The fact is that Southwest has been kicking your ass. You 
are both losing market share. They are picking it up, they have 
a lower cost point-to-point than you do hub-and-spoke.
    How can we be assured that by allowing you a domestic 
merger that you are going to be--you are going to gain global 
capability? And oh, by the way, you are going to deliver the 
kind of service domestically that could be delivered if you 
were able to really wring out cost efficiencies? I looked 
through your proposal and looked on line. I didn't see that you 
were going to reconcile a rather confusing array of aircraft 
that you both own. If there is an airplane made and still in 
service, one of you owns it right now; is that pretty much 
right?
    Mr. Smisek. Let me deal with that multipart question. 
Southwest is an excellent carrier.
    Mr. Issa. Their sales approach shows it.
    Mr. Smisek. They are very good, and I have nothing but 
respect for Southwest. We will always have significant domestic 
service because we need to gather those passengers through our 
hubs. If you are flying regularly between Cleveland and 
Houston, for example, we want for the presence of mind that 
when you do want to take your trip to Beijing or Shanghai or 
Delhi, or wherever, that you will choose Continental or the new 
United. So we will always have significant presence 
domestically. And I believe that we will be better, stronger 
competitors to Southwest Airlines with this merger.
    Mr. Issa. The question about your frequent fliers. The two 
of you, between you today, can you make a commitment to Members 
of Congress that frequent flier miles will be available, legacy 
miles will be available, to every frequent flier to buy as much 
value after the marriage with their legacy miles as before?
    Mr. Smisek. The frequent flier programs will continue. 
Congressman Gutierrez' concern about terminating the frequent 
flier program?
    Mr. Issa. No, No, I apologize. I was not quite asking his 
question. I was simply saying from a standpoint of legacy 
miles. You have got reserves on your books.
    Mr. Smisek. Of course. The legacy miles will continue. Our 
competitors will be doing handsprings were we ever to 
terminate.
    Mr. Issa. So your combination of these two programs is 
mostly about competing against the remaining carriers and how 
you are going to structure your combined for competition. From 
a legacy standpoint, you can guarantee all of us that the value 
in our, quote, respective banks would be maintained.
    Mr. Smisek. Yes.
    Ms. Jackson Lee. Votes are to be called around 4.
    The gentlelady from California, Ms. Chu, is recognized for 
5 minutes.
    Ms. Chu. I have questions about jobs and outsourcing.
    First of all, Mr. Tilton and Mr. Smisek, you argue that 
there will be significant synergies from this combination to 
the tune of over $1 billion. And in materials that are provided 
by your lawyers, you argue that they will be synergies from 
renegotiating the labor contracts. Yet you argue that there 
will be no frontline job loss as a result of the merger.
    So what synergies do you see from renegotiating the labor 
contracts?
    Mr. Smisek. There will not be synergies from negotiating. 
They will be what we call ``dyssynergies.'' There will be wage-
and-benefit improvements across the workforces. As I have made 
clear earlier, I intend to share an appropriate amount in the 
synergies of the combined care with all of the workers, whether 
they are unionized or not. We anticipate increased costs of our 
co-workers in terms of their wages and benefits, and not 
decreases.
    Ms. Chu. And can you be precise in terms of where the 
savings will be?
    Mr. Smisek. Those aren't savings, ma'am. Those are 
additional costs. And we will be negotiating joint collective 
bargaining agreements with each of our work groups, and, of 
course, that is an outcome that, one, we leave at the 
negotiating table; and secondly, it is difficult for me to 
guess as to the outcome at this point.
    Mr. Tilton. To be clear, the savings that you mentioned, 
the 300 million, none of that presumes to come from the 
renegotiation of any labor contracts. All of that comes from 
the elimination of redundant departments that Jeff has 
mentioned a couple of times. One accounting department, one IT 
department.
    Mr. Smisek. Additionally, there are significant savings in 
one advertising budget, one marketing budget, sales, redundant 
technology, having one type of technology. So within those $2 
to $300 million are savings from a large number of other areas.
    Ms. Chu. Well, I want to go on then to the outsourcing 
issue.
    Clearly, when management works with its employees, there 
are positive results that can be beneficial to both sides, and 
certainly your co-chair agreement with Lufthansa between O'Hare 
and Frankfurt, for example, does work. United does some of the 
flying, Lufthansa does some of the flying. The planes are full. 
Both carriers make money based on the amount of flying that 
they do.
    But now you are beginning to enter into uncharted 
territory. And on March 28, you flew an inaugural flight from 
Washington-Dulles to Madrid, marketed by United and 
transporting United passengers, but flown by an Air Lingus 
plane that was staffed by nonunion labor.
    This joint venture ends up shipping jobs overseas and 
forcing lower wages onto workers who have given up over 40 
percent of their wages over the past 6 years. So the code 
shares are one thing and outsourcing is another.
    Do you plan to continue this agreement with Air Lingus 
after Continental and United merge?
    Mr. Tilton. Congresswoman, that venture is a 5149 venture 
between the two companies. To be clear, it created jobs on the 
ground in Dulles, that otherwise would not have been created, 
that are United jobs and are represented jobs.
    The driving force behind that joint venture company, where 
one company is responsible for the operation and the other 
company is responsible for the marketing, was made possible by 
the open skies negotiation with the European Union. We would 
not have been able at the economic values--one of your 
colleagues in the former hearing made mention of the fact that 
you could fly to Madrid from the United States for $375. We 
would not have been able to fly that route if it were not for 
the joint venture.
    So we created the joint venture to fly routes where the 
economics would justify either of the two parties taking the 
risk alone. It has worked reasonably well, but we have no plans 
to expand it at this point.
    Ms. Chu. I would like to hear a response from Captain Morse 
and Ms. French.
    Ms Morse. Since it is our flying, I would like to speak to 
it first.
    Those are jobs that could have been created for United 
pilots. The wages that are being paid to the Air Lingus pilots 
are almost identical to the wages that United pilots are paid. 
So we firmly and strongly believe that those should have been 
United pilot jobs and flown by United pilots.
    Mr. Pierce. From a Continental perspective, we completely 
support Captain Morse and the United pilots in this.
    I think, quite honestly, to compare this to a typical code-
share kind of discounts the word ``share.'' It is simply to 
provide some benefit to one side without sharing any of the 
other job opportunities to the United pilots.
    Our scope agreement at Continental would not allow such an 
agreement and, quite honestly, it gives us great pause to enter 
into or to support a merger agreement with a company that 
thinks this kind of business is acceptable to its employees.
    Ms. Chu. Because it is my understanding that the way it 
worked with this Air Lingus, United just does the marketing but 
the entire flying route is done by Air Lingus, right?
    Ms. Morse. That is correct.
    Ms. Chu. Ms. Friend?
    Ms. Friend. United management has tried to persuade us all 
that it is just another code share, but in fact it is not; 
because they share equally in the risk and they share equally 
in the reward, which is not the same as their Star Alliance 
code shares.
    It is our work. And to add further to the very difficult 
labor-management relations, we have at United, they are forcing 
us through a very expensive arbitration process to enforce our 
contract language that says, in fact, that it is our work.
    Ms. Jackson Lee. The gentleman from Florida is recognized 
for 5 minutes.
    Mr. Deutch. I had a question or two about the integration 
planning process. And if either of you could explain the way 
the process works and whether it is in that planning process 
that you develop the synergy, the annual synergies that you 
have totaled that around $1.2 billion.
    Mr. Smisek. We have done extensive modeling of the 
synergies through the process that we undertook with United 2 
years ago and the most recent talks with United. And we are 
comfortable with the synergy numbers.
    The integration planning process is quite detailed, 
consists of about 30 different groups of our employees and 
their employees working through the details of the effectuation 
of that model. That is, taking step by step each group of 
synergies, and working through how we will actually put those 
into effect and the time when we can.
    Mr. Deutch. So there are 30 different groups of employees?
    Mr. Smisek. Thirty different groups of Continental 
employees and 30 different groups of United employees working 
together in the integration planning process, yes.
    Mr. Deutch. Are your numbers involved in that process?
    Mr. Roach. No, we are not involved in that.
    Mr. Deutch. Ms. Friend.
    Ms. Friend. No, we are not.
    Mr. Deutch. Ms. Morse? Mr. Pierce?
    Ms. Morse. No, that is a management integration process.
    Mr. Deutch. There are 30 groups of employees that are 
looking at how to integrate. What types of employees and how 
are these discussions being--how are they taking place, since 
the most significant integration is not ultimately going to be 
where the hubs are but who is going to be working for your 
airlines?
    Mr. Tilton. So, Congressman, one way to look at it, we have 
a group of people who are now working on the discussions that 
our colleagues have mentioned on labor integration and labor 
integration issues. There are two phases of integration. We are 
really permitted to do precious little because we remain 
competitors now. That would be anticompetitive. So this phase 
is referred to as integration planning, and I think that is why 
we frustrate a number of people when they ask us for specifics. 
Have you considered this? Have you considered this? We have to 
be very careful what it is that we share at this juncture.
    So both--and as one of our labor colleagues said, both 
companies have open negotiations with their labor groups 
ongoing; and we continue to meet on those negotiations. We are 
not going to--just to be clear, we only have so much bandwidth. 
We are not going to interrupt those conversations with a 
hypothetical now, if you see my point.
    Mr. Deutch. Okay. I suppose, the question, though, is at 
what point--I mean, in the oversight role that we play, trying 
to determine whether this all makes sense under the antitrust 
laws and whether it is good for consumers, at what point does 
the integration of the workforce actually happen? And how----
    Mr. Smisek. We are currently in discussions with our pilots 
union. They are in a far more advanced stage because they have 
dealt with each other. They have had a number of discussions 
with each other as well. They are far in advance of the other 
work groups.
    We have many work groups who are represented by one union 
at Continental and a different union at United; and the first 
thing that those workers will have to do, and only work groups 
can do this, is select their union. We don't know who to 
negotiate with until we know who the union will be.
    Mr. Deutch. But are any of those groups, those unions or 
their members, involved in the planning process? They are not.
    Mr. Smisek. We are in discussions with our work groups at 
Continental who have open contracts. We are in negotiations 
currently with our flight attendants, with our mechanics, with 
our pilots.
    Mr. Deutch. I am sorry. I just want to make sure I 
understand, since we are running out of time.
    The groups who are participating in this process, this 
integration planning process, are those groups who are 
responsible for negotiating with Ms. Friend's organization and 
Mr. Roach's organization?
    Mr. Smisek. No. We have people who are management people 
who are in the integration planning process. We have some 
people who are doing the planning work as well, but mostly we 
have people who are not doing the planning work who are also 
currently in negotiations, the open collective bargaining 
agreements. Those people will also be negotiating the joint 
collective bargaining agreements with each of our work groups.
    Mr. Deutch. Ms. Friend, you look puzzled, as I am. Can you 
speak to your role in this or help shed some light on this?
    Ms. Friend. Well, Mr. Smisek is correct as far as the 
flight attendants are concerned. I represent the flight 
attendants at United. Mr. Roach represents the flight 
attendants at Continental. So an actual integration cannot take 
place until we have resolved the representation issue.
    But there is a lot of work that can be done. There are a 
lot of discussions separately that can be done about how we are 
going to proceed. And meaningful negotiations to conclude the 
open bargaining that is ongoing could also take place, and that 
is not taking place.
    We have not--and I will let my friend Robert here speak for 
himself--but we have not been consulted on even a plan for 
future integration. We have not been consulted, and we have not 
reached agreement on what we refer to in airline negotiations 
as a ``fence agreement'' which does not require the resolution 
of the representation issue or the expense reimbursement that 
we anticipate will take place for the costs associated to our 
members for this merger. So that does not need resolution of 
representation.
    Mr. Deutch. Thank you.
    Madam Chairman, I just hope that as these discussions go 
forward that the integration process can really only take 
place, obviously, with people who are most important to us, to 
the consumers, the people we see every day. My hope is that 
that can actually take place on a going-forward basis, rather 
than coming back and dealing with all these issues at a much 
later date.
    Ms. Jackson Lee. The gentleman's time has expired. Thank 
you.
    The gentleman from Colorado is recognized for 5 minutes.
    Mr. Polis. Thank you.
    Of course, being our custom to save the best for last, I am 
excited to have my opportunity to address you here today. Madam 
Chair and Ranking Member, thank you for convening this 
important hearing on competitiveness in the airline industry.
    As the representative of a western State, the State of 
Colorado, I am keenly sensitive to the importance of a healthy 
and efficient airline industry in our country. The ability to 
travel regionally and internationally is critical to both the 
lifestyle and commercial interests of Coloradans and 
westerners.
    My district is served not only by Denver International 
Airport, which is a regional hub that offers direct service to 
most places in the country in 4 hours or less, but also by 
several regional airports like the Rocky Mountain Airport, 
which bolsters business travel in the Denver metropolitan 
region, and the Eagle County Airport that serves business and 
recreational travelers to some of our incredible tourist 
destinations like Vail, Beaver Creek, and Copper Mountain.
    Because of the ease of air travel, Colorado has become a 
regional center. This is clear every time I drive to DIA every 
week and I see many license plates from Nebraska, Wyoming, and 
Kansas in our parking lot at DIA. It shows our role as a 
regional transportation hub is also critical to our entire 
region.
    In this context of any merger that serves Denver or our 
States many regional airports, of course, it is of interest to 
our political and business leaders; and my office has received 
letters from the office of Governor Ritter, Mayor Hickenlooper, 
the President of the State Senate, the President of the Denver 
Metro Chamber of Commerce, along with representatives of 
regional airports and municipalities and chambers of commerce 
across the district in Colorado expressing their support for 
the merger of United Airlines and Continental Airlines. And 
with unanimous consent, I would like to submit those to the 
record.
    Ms. Jackson Lee. Without objection, so ordered.
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                               __________

    Mr. Polis. Our State's broad support for this merger is a 
result of the clear evidence that the net result for travelers 
to and from Colorado will likely be more routes, lower fares, 
increasing the competitiveness of Colorado and the region. My 
district in particular, the northwest suburbs of Denver, 
Broomfield, and Boulder, with its high concentration of tech 
companies who need reliable and cost-effective access to both 
coasts and international cities and our tourism industry is a 
major employer and economic driver for our mountain communities 
across Colorado. The increase in accessibility and the decrease 
in costs would help make our mountains and Eagle Summit Grand 
counties even more attractive destinations, growing the market 
and growing jobs at the same time we make our business centers 
of Boulder and Broomfield more competitive for attracting 
regional, national, and international conferences.
    I want to thank all of you for your thoughtful testimony 
this afternoon and want to close by expressing on behalf of my 
constituents our support for a thoughtful process that will 
preserve Colorado's aviation jobs and strengthen Colorado's 
role as a regional economic and transportation hub and tourism 
destination, and I yield back the balance of my time.
    Ms. Jackson Lee. The gentleman yields back and we thank him 
for his testimony today.
    We think that we have had what I think has been a good 
overview. I think that is the challenge of this whole process 
of mergers, when regions believe that--and with good cause--
that they have been blessed with a Christmas Day in June. Some 
of us, however, believe that we have some concerns; and I am 
going to ask a series of quick questions, quick-ended 
questions.
    Because my disappointment, Professor Bush, is that this 
whole review of the Clayton Act, section 7, has becomes as 
difficult to oppose as Kobe Bryant on a good day when he makes 
a dunk. And most people are saying this is a slam dunk, and 
that saddens me because the heritage of this Nation is to 
ensure that monopolies do not provide an anticompetitive 
climate.
    So would you quickly give me, to this Judiciary Committee, 
for our legislative action what do we need to do to ensure an 
effective and vigorous overview by the Department of Justice 
and what legislative fix do we need right now to give some 
strength and competence to the antitrust laws? And I need you 
to be as quick as possible.
    Mr. Bush. I will be very quick. I have pretty substantial 
faith in the actual staff of the DOJ. Some of them are friends 
of mine, and they work as hard as anybody else.
    Ms. Jackson Lee. And I do as well, but I want to make sure 
they have the right tools.
    Mr. Bush. That is the point I definitely want to address. 
The Clayton Act incipiency standard, for all intents and 
purposes in the courts, is a nonfunctioning creature. Courts 
really want to see some sort of tangible harm, and it is hard 
to focus on a tangible harm to a forward-looking prospect.
    Second, efficiencies are talked about often, proclaimed 
often, frequently don't pan out, but they seem to get the 
benefit of the doubt. Whereas anticompetitive effects or 
theories of anticompetitive effects brought by the Department 
of Justice and the Federal Trade Commission are looked on 
dubiously. So that is a flipping of the incipiency standard 
where we----
    Ms. Jackson Lee. So do we need to write legislation that 
strengthens that standard?
    Mr. Bush. In my opinion, yes.
    Ms. Jackson Lee. All right. Would you provide this 
Committee with a list of the legislative fixes that are 
necessary and the right questions that this Committee might 
propose to the very effective Department of Justice staff as 
they begin or continue their work? Would you do that for the 
Committee, please?
    Mr. Bush. Absolutely.
    Ms. Jackson Lee. Thank you.
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                               __________
    Ms. Jackson Lee. Let me pose these questions again to Mr. 
Smisek and Mr. Tilton. In planning for the merger among the 
jobs in downtown Houston, downtown Chicago, and Elk Grove, do 
you have a total of how many jobs you expect to eliminate? 
Chicago, Houston, and Elk Grove? Mr. Tilton?
    Mr. Tilton. Congresswoman, we are going to effectively 
close Elk Grove.
    Ms. Jackson Lee. And how many jobs is that?
    Mr. Tilton. Well, it is about 2,800 jobs, but they are 
going to be moved to Willis Tower.
    Ms. Jackson Lee. So you will keep your 2,000 jobs.
    Mr. Tilton. Well, as Mr. Smisek said, until we are able to 
put the new organization together and size----
    Ms. Jackson Lee. But you expect that you will lose some 
jobs or keep the full 2,000?
    Mr. Tilton. I would expect that there will be job loss, as 
Jeff said, both in Chicago and in Houston.
    Ms. Jackson Lee. And can you gauge how many they will be? 
And I will not do the billion dollars, but do you----
    Mr. Tilton. Congresswoman, neither one of us know today.
    Ms. Jackson Lee. All right. Mr. Smisek, we are going to 
come again. How many people do you currently employ in downtown 
Houston?
    Mr. Smisek. We employ over 3,000 people.
    Ms. Jackson Lee. And how many people do you expect--100, 
200, 300, 400--that will lose their jobs?
    Mr. Smisek. As I have said before, we have not determined 
the number. When we have gone through the integration planning 
process, we have determined the number of jobs, we will tell 
the employees first because of our culture; and then we will 
tell you.
    Ms. Jackson Lee. And do you have a range of how many jobs 
will be lost?
    Mr. Smisek. Well, it won't be zero, and it won't be 3,000.
    Ms. Jackson Lee. And do you have specific corporate 
functions that you would consider keeping in Houston?
    Mr. Smisek. We are working through that right now in our 
integration planning process.
    As I said earlier, jobs that are not necessary to move to 
Chicago I want to do my best to keep in Houston, because I want 
to disturb people's lives as little as possible.
    Ms. Jackson Lee. And are you meeting with the various 
leadership of a Cleveland--it looks as if you have met with the 
leadership of a Colorado, but of a Cleveland, a Houston, and a 
Newark, have you sat down with the leadership, both business 
and city?
    Mr. Tilton, it looks like you have, because they are 
shouting for joy in Chicago.
    Mr. Tilton. Well, I think that Chicago, San Francisco, 
L.A., Denver, Dulles, Washington, D.C., are all very supportive 
of the benefits to those communities.
    Ms. Jackson Lee. Mr. Smisek, what kind of progress have you 
made?
    Mr. Smisek. I have met with Mayor Jackson. I am going up in 
a couple of weeks to meet not only with Mayor Jackson but 
members of the business community as well. In Houston, I have 
met with Mayor Parker. I have also met with the Greater Houston 
partnership as well, and we continue to have an open dialogue 
with the Greater Houston.
    Ms. Jackson Lee. It makes it very difficult when they 
cannot operate with specific numbers. And I imagine that this 
has been announced more than 2 months ago. There has to be some 
synergism to know just how many jobs we are going to lose in 
Houston. Do you know when you will know those numbers?
    Mr. Smisek. I don't, but as soon as I know them I will tell 
the employees.
    Ms. Jackson Lee. But I do have you on the record and I do 
appreciate it that you are going to do everything personally to 
minimize the loss of jobs in Houston, Texas.
    Mr. Smisek. Yes, I will.
    Ms. Jackson Lee. And you will continue a meeting with all 
of us who are interested in meeting.
    Mr. Smisek. I am always interested in a dialogue.
    Ms. Jackson Lee. Let me ask the question before I move 
quickly, Mr. Tilton and Mr. Smisek, why have you not met with 
the machinists? And I understand the integration question of 
who is the personal representative. But, Ms. Friend, why have 
they not had meetings and been able to sit down at the table?
    Mr. Tilton. Well, as Mr. Roach said, we have met. We 
haven't fully satisfied Mr. Roach's requests for information, 
but as we develop the information we will make it available to 
all of our unions, and that is actually what the responsibility 
is of the integration team that is responsible for sharing 
information with our respective unions.
    Ms. Jackson Lee. Do you intend to have the labor groups as 
a partner in this merger?
    Mr. Tilton. We certainly expect to have all of our labor 
groups as partners in this merger. And, as a matter of fact, as 
Jeff said a moment ago, without actually knowing, 
Congresswoman, who eventually is going to be the successful 
representing group of a particular workforce, it makes it more 
difficult than it is but still achievable, but more difficult 
than it is with the----
    Ms. Jackson Lee. How do you intend to implement this 
partnership? And I want Mr. Smisek--Mr. Smisek, do you intend 
to have the labor groups as a partner?
    Mr. Tilton. Sure. I would use the pilots, as Mr. Smisek 
said a moment ago, and, frankly, the testimony of Captain 
Pierce and Captain Morse as a good example. Both of them have 
met with the companies, their respective companies.
    The other thing I would add, Madam Chairwoman, is the fact 
that the IAM is represented on the board of directors of United 
Airlines, and the ALPA is represented on the Board of 
Directors. Both of them have seats on our current board. And, 
as Mr. Smisek mentioned, both of those unions are going to have 
seats on the board of the new company.
    Ms. Jackson Lee. Mr. Smisek, do you intend to have the 
labor groups as a partner in this merger?
    Mr. Smisek. Congresswoman, I think that our labor relations 
at Continental speak for themselves. We value all of our co-
workers, whether they are represented by unions or not.
    Ms. Jackson Lee. And how do you plan to implement their 
participation?
    Mr. Smisek. We will have--we are undergoing discussions 
currently with the pilots. We have got open contracts, and we 
have discussions with the IAM, with the IBT, with all of our 
unions. We will continue those discussions as the groups select 
their union representation because we have different 
representation in different groups. We want to negotiate. I 
want to negotiate as the CEO of the combined company. I want to 
negotiate joint collective bargaining agreements promptly that 
are fair to the employees and fair to the company. I intend to 
do so.
    Ms. Jackson Lee. Thank you, Mr. Smisek.
    As we have in the United States Congress amendments and 
suspensions and only we know the inside ball game, Mr. Roach, 
just clarify all of this about groups and other groups and who 
is represented and tell me what your problem is with this 
merger and are you represented and have you been able to sit 
down and do you have your group together? And clarify for the 
record so we can understand why all groups have not met.
    Mr. Roach. The Machinists union represents groups from both 
Continental and United.
    Ms. Jackson Lee. And have you had your opportunity to sit 
down?
    Mr. Roach. We had a meeting. We have had three meetings, 
one separately with Continental, one separately with United, 
and a joint meeting. There is no information. We had a meeting 
so they could tell us they don't have any information, just 
like they are saying right here.
    Ms. Jackson Lee. So the presence of IAM on the board does 
not counter the need for information and participation.
    Mr. Roach. No, the board of directors on the IAM does not 
represent the labor groups.
    Ms. Jackson Lee. Do you expect to have a loss of jobs?
    Mr. Roach. Certainly. In a merger? We have no information 
to the contrary.
    Ms. Jackson Lee. And what do you want the Committee to know 
and how do you want us to act in light of that?
    Mr. Roach. Again, we think there are two areas. We need to 
have information. They need to give us the information, sit 
down with us, and tell us what the information is.
    I understand there are certain confidential requirements, 
and we have advised United yesterday and we are going to advise 
Continental today we are prepared. We have people, professional 
people, who will sit down and sign a confidentiality agreement, 
get the information we need so that decisions can be made and 
we can move forward.
    Ms. Jackson Lee. Mr. Smisek and Mr. Tilton, can you do 
that, sign the confidentiality agreement so that they can have 
the information necessary?
    Mr. Smisek. Congresswoman, we do that regularly.
    Ms. Jackson Lee. And you will do that in this instance?
    Mr. Smisek. Yes.
    Ms. Jackson Lee. Ms. Friend, how can we help provide a 
smooth path for your engagement?
    Ms. Friend. Well, I won't repeat what Mr. Roach said, but 
we have the same problem with getting information.
    But, additionally, as my testimony says, we believe that 
the Congress needs to impose some labor protections because we 
don't know how many, if not job losses, we don't know what the 
displacements might be, and there are no economic protections 
any longer for workers that suffer in these mergers.
    Ms. Jackson Lee. And, Captain Pierce, you will be the last 
witness. Can you explain what your concerns are representing 
the Continental pilots? I have heard from Captain Morse. Any 
comment you may have on this outsourcing of pilots on these 
smaller flights?
    Mr. Pierce. Thank you, Congresswoman. I will speak to both.
    The major concern we have and the first concern we have is 
that the entity that is being created must be a viable entity. 
It must be a strong entity or as strong and as viable as the 
two that are being dismantled. I mean, that is a core necessity 
for the pilot group to support or not to oppose this merger, is 
that it has to be a good business plan. A viable entity has to 
be created so that it can support the employees, the consumer, 
and the traveling public.
    I have always had long-standing concerns about 
subcontracting. As I said in my opening statement, I believe 
that when a passenger goes to continental.com or united.com or 
picks up the phone and calls our res centers and they buy a 
ticket from Houston to Newark to Rochester, that they expect 
one level of safety, one level of service throughout that 
travel experience. And I believe that the network carrier that 
sells that ticket should provide one level of service; and I 
firmly believe that, in order to do so, it should be the 
network carrier's pilots flying the equipment providing the 
service. Whether that equipment be a 70-seat airplane, a 90-
seat airplane, or a 256-seat airplane, we all have the ability, 
both United pilots and Continental pilots, to fly any piece of 
aircraft that our companies purchase.
    Ms. Jackson Lee. Let me thank all of the witnesses for both 
their patience and the attentiveness they have given this very 
important hearing.
    Without objection, Members have 5 legislative days to 
submit any additional written questions for you which we will 
forward and ask that you answer as promptly as you can to be 
made part of the record.
    The Committee has made several requests, and we would 
appreciate if the witnesses who have been asked to provide the 
information will provide it in writing.
    We ask the witnesses that are representing the employees to 
provide the Committee with a status report of the questions 
that have been asked here today and also the commitments that 
have been made on future meetings that you have requested.
    The record will remain open for 5 legislative days for the 
submission of any other additional materials.
    This has been a very important hearing. I thank the 
witnesses for their demeanor and the recognition of the 
responsibility of the United States Congress to have serious 
oversight over these issues.
    With that, the hearing is adjourned.
    [Whereupon, at 4:32 p.m., the Committee was adjourned.]

                                 
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