Houston-Based Airline To Join Star Alliance

When it comes to uneasy alliances, this one might rank right up there with the United States and the Soviet Union during World War II... and may be for a similar end, that being sheer survival.

Continental Airlines and United Airlines announced Thursday a framework agreement to cooperate "extensively," linking their networks and services worldwide to the benefit of customers, and creating revenue opportunities and cost savings and other efficiencies.

In addition, Continental plans to join United in Star Alliance -- the largest global airline alliance by far -- ending its membership with the Delta/Northwest-headlined SkyTeam.

The agreement isn't a full-fledged merger; Continental soundly rejected that idea in April. As ANN reported, United then entered into 11th-hour talks with US Airways... only to turn down that airline's overtures.  

What the agreement does, however, is provide both carriers with many of the same benefits as a merger... while keeping both airlines independent for the immediate future, and avoiding nasty integration issues.

"Alliances can work better than mergers in raising revenues and reducing costs without the integration, regulatory and labor headaches," Standards & Poor's analyst Jim Corridore told Bloomberg. Corridore has rated United as "buy," with Continental earning a "strong buy" recommendation.

News of the agreement will come as a surprise to those who'd bet on a similar partnership between Continental and American Airlines. As ANN reported, many believed those airlines would form a similar partnership, after Continental turned down United's merger overtures, as the alliance announced Thursday. An alliance with American would have brought Continental into the OneWorld alliance, along with British Airways... but little came of those talks in the end.

Both airlines stress Thursday's announcement means more than just a common alliance, however. Teams from Continental and United worked over the last several weeks exploring solutions for how the two companies could achieve results expanding beyond the benefits of codesharing. Their work focused on plans for significant cooperation on frequent flier programs, lounges, facility utilization, information technology and procurement. This work was assisted by the efficiency opportunities identified and relationships developed during the parties' earlier merger discussions.

"The teams worked well together to identify opportunities to create a unique and competitive partnership extending well beyond a traditional code share agreement," said Glenn Tilton, chairman, president and CEO of United. "On behalf of the Star Alliance, I am very pleased to invite Continental to join as a member. Continental will bring significant new assets to our global alliance, and our two companies will work together effectively with our partners to provide the best overall network in America and the world."

Kellner and Tilton signed a framework agreement Thursday afternoon, outlining the systemwide alliance and cooperation principles between their respective carriers.

FMI: www.continental.com, www.united.com