Before we answer why Continental Airlines and United Airlines agreed to merge, let's look at both airlines separately and see what led up to the two airlines becoming one. United Airlines can trace its origins to 1926 when Walter Varney founded Varney Air Lines in Boise, Idaho.

Looking to modernize the county's postal service, the Postmaster General was told to give lucrative mail contracts to private airlines. Varney Air Lines was the only bidder winning the contract to deliver mail in the upper Northwest states.

In 1929, William Boeing merged Boeing Air Transport with Pratt & Whitney to form the United Aircraft and Transport Corporation (UATC). The new company immediately set out to buy smaller airlines and started a holding company called United Air Lines.

Continental can trace its roots back to Walter Varney

Again, like United, Continental can trace its beginnings back to Walter Varney and his Varney Speed Lines, a mail carrier in the Southwest states. When Congress passed the Air Mail Act of 1930, the Postmaster General held meetings with executives of the larger airlines to award mail contracts. None of the smaller airlines were invited to what would later be called the "spoils conference."

Photo: Tomas Del Coro via Wikimedia Commons.

This led to a public outcry, and in 1934, President Franklin D. Roosevelt canceled the contracts, giving mail delivery to the Army Air Corps. Sensing an opportunity, Robert Forman Six bought the Southwest division of Varney Speed Lines and renamed it Continental Air Lines.

Over the coming years, Continental continued to grow and won lucrative contracts from the United States military to transport troops from America to Southeast Asia during the Vietnam War.

Both had to file for bankruptcy protection

During the 1980s, Continental was plagued with labor disputes, filing for Chapter 11 bankruptcy protection on September 24, 1983. During the 1980s, low-cost airlines like People Express began offering ridiculously low fares, undercutting rival carriers. Everything was going well for People Express when they made the mistake of overpaying to acquire Denver-based Frontier Airlines.

Now massively in debt, People Express was taken over by Continental owner Frank Lorenzo's Texas Air Corporation. Following the September 11, 2001, terrorist attacks in New York and Washington, people refused to fly, which, combined with a machinist labor dispute, forced United Airlines to file for Chapter 11 bankruptcy protection in December 2002. United eventually emerged from Bankruptcy protection in 2006 and resumed normal operations.

The airline industry was consolidating

To examine why Continental and United merged, you first need to look at consolidation in the airline industry following the merger of Air France and KLM in 2004. A year later, in 2005, US Air acquired America West Airlines.

Photo: Aero Icarus via Flickr.

Looking at ways to save money and at the same time grow its network in 2006, Continental Airlines began talking with United Airlines about the possibility of a merger. Continental had a significant presence in the south and east, while United had a substantial presence in the west.

In September 2010, both airline's shareholders voted for the merger, creating for a time the world's largest airline. They decided to keep United Airlines as the new airline's name because both sides felt it had more value and that more people were familiar with it. In a nod towards Continental, it was agreed that Continental's gold globe logo would replace United's colorful tulip logo on all the new airline's aircraft tails.

So the bottom line is that the two airlines merged to save money and grow into what is today the world's third-largest airline by fleet size behind American Airlines and Delta Air Lines.