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UAL Looks To Form Non-Traditional Relationship With Continental

Less A Marriage... More 'Friends, With Benefits'

The unlikely pairing of United Airlines with Continental may redefine the very notion of an airline partnership, and analysts are curious to see what 2009 has in store for the two carriers.

As ANN reported, the two carriers announced in June a framework agreement to cooperate "extensively," linking their networks and services worldwide to generate 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. However, the Chicago Tribune reports the proposed pairing is looking less and less like a traditional alliance by the day.

"What we're doing with Continental is new and going to a place we haven't gone before with any of our partners," said Michael Whitaker, United's senior vice president for alliances, international and regulatory affairs, who's leading that carrier's efforts to join with Continental.

Analysts say both carriers want greater leeway in establishing cost-saving partnerships on shared routes... right up to the point anti-trust regulators would become concerned, and without formally merging the two companies. Both sides point to the lack of available funds at either carrier to accomplish that, adding the current political climate probably wouldn't be the best time to approach lawmakers for a $1 billion helping hand. 

"Financing a transaction in this credit environment would be very difficult," admits United CEO and merger advocate Glenn Tilton.

What might result from the pairing of United and Continental, says consultant Robert Mann, could be the framework for an eventual merger down the line.

Mann notes the alliance proposed by United and Continental would result in shared frequent flier programs, reservation systems and airport lounges... many of the same benefits Delta netted with its acqusition of Northwest Airlines this year, but without the need for renegotiated labor contracts and other messy formalities.

"If the carriers get comfortable over time, who knows what it might lead to?" Mann says. "It's kind of like the dating process."

Perhaps the better analogy would be living together... or even "friends with benefits," as both parties appear to want all the perks of a full-fledged merger, while retaining the ability to walk away at any time.

Moreover, this could be a precedent for future airline "alliances," notes analyst and former airline pilot Vaughn Cordle... as the ability for passengers to fly on several carriers on a common ticket could negate the need for true mergers.

"At that point, it becomes irrelevant whose logo is on the plane," he said.

We dunno... that sounds a lot like "planeswapping." What would their parents think?

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

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