Continental Airlines Inc said that it would not pursue a merger with another carrier right away, a surprising move after weeks of growing speculation that it would join United Airlines to create the world’s biggest airline.
Continental chairman and chief executive Lawrence Kellner said in a message to employees on Sunday that the Houston-based airline was better off alone than merging.
“We have significant cultural, operational and financial strengths compared [with] the rest of the industry, and we want to protect and enhance those strengths — which we believe would be placed at risk in a merger with another carrier in today’s environment,” Kellner told employees.
Although it reported an US$80 million loss in the first quarter, Continental is widely viewed as the second strongest US carrier in financial terms, behind only Southwest Airlines Co, which has indicated it isn’t interested in a merger.
Continental’s decision stunned United’s parent company, UAL Corp, which had been in advanced talks with Continental and expected to complete a deal by early next month.
But last week, UAL reported a US$537 million loss in the first quarter — its biggest loss since emerging from bankruptcy in 2006 and larger than Wall Street expected. UAL’s stock market value plunged 35 percent.
Glenn Tilton, UAL’s chairman and CEO, signaled late on Sunday that he would still pursue mergers even after Continental’s pullout.
“Consolidation is under way — ensuring you have the right partner is everything,” Tilton said in a statement. “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.”
Ray Neidl, an analyst with Calyon Securities, said Continental’s exit leaves US Airways Group Inc as a potential merger partner for United.
The CEOs of United and US Airways are both vocal proponents of airline mergers. But US Airways lacks the strong international routes that made Continental an attractive partner. A US Airways spokesman declined to comment.
Continental’s board held a special meeting on Sunday and voted unanimously to abandon a merger.
Still, Continental appeared to leave the door open to an alliance with another carrier. The airline has reportedly discussed such an arrangement with AMR Corp, the parent of American Airlines, in which the companies would work together in many ways but not merge their operations.
While Kellner ruled out a merger for now, Continental appeared to leave the door open to an alliance with another carrier. The airline has reportedly discussed such an arrangement with AMR Corp, the parent of American Airlines, in which the companies would work together in many ways but not merge their operations.
Airlines have been considering consolidation as a way to cut costs and raise fares in the face of record fuel prices. Delta Air Lines Inc announced earlier this month it had agreed to buy Northwest Airlines Corp in a stock-swap deal that would create the world’s largest carrier. A Continental-United combination would have trumped Delta-Northwest in size.
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