Sun, Jun 01, 2008 page11

• Continental may leave alliance of air carriers

  DESPERATE With fuel prices almost double what they were last year, analysts said airlines want to team up to maximize profits while avoiding antitrust trouble

  • AP
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  Continental Airlines Inc said on Friday it was considering new alliance partners and may pull out of the SkyTeam alliance of carriers around the world.

  According to people familiar with the situation, Continental continued to discuss an alliance with UAL Corp’s United Airlines that would be designed to boost revenues for each.

  United and US Airways Group Inc confirmed on Friday that they had suspended merger talks.

  “Continental is continuing to review potential alliances and our membership in SkyTeam,” Continental spokeswoman Julie King said in an e-mail. “We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term.”

  Houston-based Continental has also talked with British Airways (BA) and AMR Corp’s American Airlines about joining them in an alliance.

  BA and American are part of another group of carriers called the oneworld alliance.

  Alliances are agreements among airlines to work together to reduce costs and market themselves while continuing to fly their own planes using their own employees.

  They can range from simply selling tickets aboard each other’s flights to working together on prices and schedules. They face less regulatory scrutiny and labor opposition than full mergers, such as Delta Air Lines Inc’s April agreement to buy Northwest Airlines Corp.

  United, the No. 2 US airline, had tried to merge with Continental, but Continental walked away from the talks in April after UAL reported a US$537 million loss in the first quarter.

  Now United hopes to bring Continental into its Star Alliance, which also includes Lufthansa and about two dozen other carriers.

  Continental’s partners in the SkyTeam alliance include Delta, Northwest and Air France/KLM.

  Airline industry experts said alliances let airlines offer more flights without adding costs. That is a key consideration when airlines are dealing with jet fuel prices that have nearly doubled in the last year.

  “This is the path of least resistance for an industry that is desperate to find the next dollar of revenue,” said William Swelbar, an airline industry researcher at the Massachusetts Institute of Technology.

  Swelbar said Continental would be sought by any of the alliances because of its hubs in Newark, New Jersey, serving the giant New York market, and Houston, where the oil-based economy is stronger than many other US cities.

  Darryl Jenkins, an airline management consultant in Virginia, said the benefits of an alliance include greater global reach, less risk than a merger, and mostly the chance to bring in millions of dollars in additional ticket sales at minimal cost.

  “It’s all about more revenue,” he said.

  The downside, he said, is that alliance partners cannot work together to set prices and schedules unless they first get antitrust immunity from regulators.

  “The best possible alliance is one with antitrust immunity,” Jenkins said. “That’s a virtual merger.”

  But not easy to achieve.

  American and British Airways tried twice in past years and failed to win antitrust immunity from US regulators because of their dominance at London Heathrow airport.

  Mike Boyd, a Colorado-based airline consultant, said that alliances may be less threatening to workers, who face job cuts or lost seniority when two work forces are combined.

  But the benefits of alliances — incremental revenue gains — cannot solve all the industry’s troubles.

  “It’s not going to change fuel prices, and it’s not going to change the need for the industry to restructure,” Boyd said.
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