May Pursue New Alliance With AAL, British Airways
And there was much rejoicing in Houston... but for how long? On
Sunday, Continental Airlines said it had abandoned merger talks
with United Airlines, and declared its intention once again to
remain an independent carrier.
The New York Times reports Continental's decision was a
clobbering blow to United, which reportedly hoped to announce a
merger with Continental later this week.
"The board very carefully considered all the risks and benefits
of a merger with another airline, and determined that the risks of
a merger at this time outweigh the potential rewards, as compared
to Continental’s prospects on a stand-alone basis," wrote
Continental CEO Larry Kellner, and president Jeffery A. Smisek, in
a letter to Continental workers.
The executives added they feared a merger with United would
place the airline "at risk," both competitively and financially...
an apparent reference to the staggering $537 million Q1 2008 loss
United posted last week.
United CEO Glenn Tilton, a proponent of industry consolidation,
reiterated his intent to find a partner to dance with... even as
his options become less and less desirable.
"Consolidation is under
way. Ensuring you have the right partner is everything," Tilton
said Sunday. "We will pursue all options to ensure a strong,
sustainable future for our airline and will not shy away from the
tough choices necessary to create value for our shareholders and
benefit our employees and customers."
After being shunned by Continental, industry insiders believe
Tilton's second choice will likely be US Airways. CEO Doug Parker
is also a rabid advocate for industry consolidation, and fought
unsuccessfully to merge with Delta Air Lines over one year ago.
United has since stepped up what had been preliminary
merger talks with US Airways, according to industry reports.
However, a US Airways merger is seen as less desirable to
United than joining with Continental, particularly in the area of
employee relations.
Almost three years after its merger with America West, Tempe,
AZ-based US Airways is struggling to overcome employee dissension,
particularly among its
pilots... and it's no secret a large portion of United's workforce is
also dissatisfied with Tilton & Co.
In opting to not pursue a merger, Continental did leave the door
open for partnerships of a different nature... particularly, in the
area of airline alliances. Analysts tell the Times Continental has
entered preliminary talks with American Airlines and British
Airways, to form a three-way, cross-border code-sharing
partnership.
"We are considering alternatives to SkyTeam" -- Continental's
current alliance with Delta and Northwest -- "as we carefully
evaluate which major global alliance will be best for Continental
over the long term," executives said Sunday.
As ANN reported, on April 14
Delta announced its intent to merge with Northwest Airlines,
forming what would be the largest airline in the world if approved
by regulators. That announcement also triggered the latest wave of
merger speculation.
Though decried by consumer rights advocates -- who point out
mergers lead to reduced competition, and thus higher airfares --
those in favor of consolidation say it could be the only way the
fractious US domestic airline industry will survive the current
economic slump, and record high fuel prices. Those proponents say
mergers would allow airlines to trim costs, and to raise airfares
to profitable levels.
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