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Apr-29-2008Airline sector gains for 4-straight session, as crude prices fall(topic overview)
CONTENTS:
- NEW YORK (Reuters) - American Airlines (AMR.N: Quote, Profile, Research ) has had early-stage merger talks with U.S. Airways (LCC.N: Quote, Profile, Research ) and is in advanced talks for an alliance with Continental Airlines (CAL.N: Quote, Profile, Research ), sources briefed on the situation said on Friday. (More...)
- At the time, it would have created the nation's largest airline - just as today a United-US Airways merger would vie with the combined Delta-Northwest for world's-largest-airline bragging rights. (More...)
- Air Canada is following in the footsteps of other major North American airlines and will start charging passengers $25 if they wish to check a second piece of luggage. (More...)
- Lots of Airbus A319s and 320s to try to integrate with Continental'''s modern 737 domestic fleet. (More...)
- United Airlines Chief Executive Glenn Tilton, who has been a proponent of consolidation, said the company's strategy is consistent. (More...)
- The airlines agreed to team up eight years ago, but United called off the planned $4.3 billion acquisition 14 months later in July 2001 after the Justice Department said it would sue to block it. (More...)
- Continental, which like United has been through bankruptcy, is also facing financial pressure. (More...)
- The U.S. majors rank among the world's largest carriers, but have fallen on hard times. (More...)
- While it wouldn't kill a merger deal, King said, "that is probably the biggest hurdle of all." (More...)
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NEW YORK (Reuters) - American Airlines (AMR.N: Quote, Profile, Research ) has had early-stage merger talks with U.S. Airways (LCC.N: Quote, Profile, Research ) and is in advanced talks for an alliance with Continental Airlines (CAL.N: Quote, Profile, Research ), sources briefed on the situation said on Friday. News of the talks comes after Delta Air Lines' (DAL.N: Quote, Profile, Research ) and Northwest Airlines' (NWA.N: Quote, Profile, Research ) announced nearly two weeks ago they planned to merge to become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and a growing competitive threat from European carriers as trade barriers fall on trans-Atlantic travel. [1] "We will pursue all options to ensure a strong, sustainable future for our airline." Sources had told Reuters earlier this month that United was also in serious merger talks with U.S. Airways (LCC.N: Quote, Profile, Research ). Continental's decision comes after Delta Air Lines (DAL.N: Quote, Profile, Research ) and Northwest Airlines (NWA.N: Quote, Profile, Research ) said nearly two weeks ago they planned to merge and become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel. Continental said on Sunday in a letter to its employees it has chosen not to merge with any other airline at this time but will continue to consider an alliance with other carriers.[2]
Pressure on executives at United Airlines and other carriers to speed up merger talks is intensifying as U.S. airline stocks plummeted last week, buffeted by record oil prices and dismal quarterly earnings. Executives at the nation's largest airlines don't need any prodding to strike deals from unhappy investors, who saw the value of their holdings shrink by as little as 10 percent for U.S. Airways or as much as 35 percent for Chicago-based United over the past five-day stretch. They already are exploring every conceivable combination in response to a sudden industry downturn and the global competitive threat posed by the proposed merger of Delta Air Lines and Northwest Airlines, insiders said.[3]
Don't expect the two Texas carriers to merge anytime soon. Analysts say a more likely scenario is a marketing agreement that would allow each to sell seats on the other's flights and integrate some features such as frequent-flier programs. That type of deal could extend beyond the two airlines and include the Oneworld international alliance, which includes carriers like British Airways and Japan Air Lines. The reason for the potential hookup: Continental may lose its membership in the SkyTeam alliance, which includes Delta Air Lines and Northwest Airlines, if those carriers merge. That could cost Houston-based Continental several hundred million dollars annually in revenue, said industry analyst Robert Mann of R.W. Mann & Co. "That's not chicken feed, especially when the airlines are scraping around for every dollar they can raise," he said. "And it's money that comes without a lot of pain." Continental shocked many industry watchers Sunday, when executives said they planned to maintain the airline's independence. Many had expected the carrier to announce a merger with United as early as this week. Airline executives said their best course was to continue operating on a stand-alone basis, citing the airline's cultural, operating and financial strengths.[4] The April 27 letter comes almost two weeks after Atlanta-based Delta Air Lines Inc. (NYSE: DAL) announced it would merge with Minnesota-based Northwest Airlines in a $17.7 billion deal. At the time of the Delta/Northwest announcement, Kellner and Smisek wrote to employees, "This merger will change the competitive landscape for Continental and the entire airline industry." Because of that, they wrote, the company planned to review its strategy in order to keep the airline competitive.[5] For a period of time, Continental (CO) appeared to be in the market for tie-ups with other carriers, particularly as the recent merger agreement announcement between Delta Air Lines and Northwest Airlines (NWA) rendered NWA's "golden share" in CO void. This freed Continental to pursue a merger of its own. In a weekend message to employees, chairman and CEO, Larry Kellner, said, "The best course for Continental is to not merge with another airline at this time.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."[6]
"While some would prefer to see Continental pursue a merger, we strongly believe we have made the right decision.'' The announcement eases some of the merger momentum spurred by Delta Air Lines Inc.' s agreement two weeks ago to acquire Northwest Airlines Corp. Kellner himself had fostered expectations by saying a changing competitive landscape may force Continental to rethink its goal of remaining independent. Those changes included soaring jet-fuel costs and slowing demand that led the six biggest U.S. carriers to post first- quarter losses.[7] Merger discussions among airlines have increased sharply in recent weeks because of the proposed acquisition by Delta Air Lines Inc. of Northwest Airlines Corp., which would create the world's largest airline. U.S. Airways chief executive officer Doug Parker has said he believes consolidation within the airline industry is inevitable because of the need to reduce capacity, or the total number of seats available for sale, and because of soaring fuel costs.[8] In contrast to a tie-up with Continental, whose route system was seen as highly complementary to United's, U.S. Airways offers some significant challenges as a partner and does not have the Atlantic routes United would like. Since U.S. Airways dropped its hostile bid for Delta Air Lines Inc. last year, the carrier has been mostly left out of merger speculation. Some industry observers have considered it a poor match for any other airline because of its weak international flight network. U.S. Airways' reputation as a possible partner also was damaged because of its trouble with fully integrating operations almost three years after it combined with America West Airlines.[9] Jerry Orr, aviation director at Charlotte/Douglas International Airport, agreed, saying Charlotte stood to gain when U.S. Airways and United tried to merge in 2000. "We viewed that as positive," he said. "It's a bigger airline with a broader, global reach, and we would be their Southeast hub." Orr also said that despite their interest in consolidation, U.S. Airways and United have struggled financially, weathering bankruptcies in recent years and sagging stock prices over the past several months. "Nobody has really shown clearly that you can make a merger work," he said. Most airline analysts favored Continental as United's partner, citing its high percentage of lucrative foreign flights and better financial position. U.S. Airways has a weaker foreign presence, they said, but its purchase price would be much lower.Potential obstacles to a United-US Airways merger include the carriers' combined presence in the Washington area, which led to antitrust concerns in 2000 and ultimately derailed the airlines' previous merger bid.[10]
Chicago, IL -- So if United Airlines and Continental aren't going to merge, what about a deal between United and U.S. Airways? Two people familiar with the talks say United and U.S. Airways expect to announce within weeks that they are combining. Such a combination would vie with a planned pairing of Delta and Northwest for the title of the world's largest airline. United and U.S. Airways stepped up their discussions, said to be at an advanced stage, after Continental caught United off guard by deciding not to pursue a deal with the UAL Corp. -owned carrier. Airlines are seen under pressure to merge as they encounter huge losses caused largely by the sharp spike in fuel costs.[11] Putting the two carriers together would create an airline that would jockey with a combined Delta-Northwest for the title of world's largest airline. United and U.S. Airways stepped up their talks after Continental Airlines Inc. caught United off guard by deciding not to pursue a deal with the UAL Corp. -owned carrier.[9]
MUMBAI (Thomson Financial) - Standard & Poor's Ratings Services posited U.S. Airways Group Inc. as the most likely merger partner for United Air Lines Inc. now that Continental Airlines Inc. has bowed out of merger talks with United's parent UAL Corp.[12] United now setting its sights on partnering with U.S. Airways Boston Globe DALLAS - UAL Corp.' s United Airlines is in merger talks with U.S. Airways Group Inc. after being rejected as a suitor by Continental Airlines Inc., five people familiar with the discussions said.[13] WASHINGTON (Reuters) - UAL Corp and U.S. Airways Group Inc are in advanced merger talks prompted by Continental Airlines Inc's decision this weekend to walk away from similar talks with UAL, sources with knowledge of the matter said on Monday.[14]
Sources briefed on the situation have said American Airlines (AMR.N: Quote, Profile, Research ) has had early stage discussions with U.S. Airways and is in advanced talks for an alliance with Continental. Sources have also said Continental is in talks with United on a merger and would choose either a deal with United or an alliance with American, but not both.[15] No officials from Continental or American would comment. Those talks could gain momentum now that Continental has made clear it has no interest in pursuing a merger right now. In recent months, Continental and other U.S. airlines have been forced to rethink their competitive positions amid surging fuel costs, a slowing economy and rising global competition from foreign carriers. Late Sunday, Continental released a statement saying its board unanimously decided the risks of a merger outweighed the potential rewards. It was seen as a rebuff of a possible deal with United Airlines, with whom Continental has explored a merger at different times for more than a year. Continental CEO Larry Kellner left open the possibility of forging potential alliances with other carriers, as well as reviewing its participation in SkyTeam, its current marketing partnership.[16]
CHARLOTTE, N.C. -- Thanks to the process of elimination, now may be the time for the airlines that most want to merge to go ahead and find a deal, despite the high risk. That likely means putting together United with U.S. Airways LCC, whose leaders have been the two biggest advocates for industry consolidation over the past three years. Those airlines tried to merge in 2000, but the arrangement fell apart. Now, it's on the front burner again, sources say, following the weekend collapse of talks between Continental CAL and United.[17] Yesterday's news boosted U.S. Airways shares more than 20 percent. U.S. Airways has almost two-thirds of the flights and passenger traffic at Philadelphia, its main international connecting hub. United and U.S. Airways stepped up their talks after Continental Airlines Inc. said its board supported a management recommendation Sunday that it not pursue a deal with United, as had been widely expected, the AP said.[8] CHICAGO (AP) — A person close to the negotiations says United Airlines and U.S. Airways are in very advanced talks with the expectation of announcing within two weeks that they are combining. The two carriers have stepped up their talks after Continental Airlines Inc. caught United off guard by deciding not to pursue a deal with the Chicago-based carrier.[18] A RADICAL reshaping of world aviation is set to kick off this week, with four of the biggest American players in takeover talks and bidders circling BMI British Midland, the second-biggest airline at Heathrow. In America, United Airlines and Continental Airlines plan to announce their marriage on Thursday, while American Airlines, British Airways' U.S. partner, is cosying up to U.S. Airways.[19] United Airlines is also in serious merger talks with U.S. Airways, and will choose to merge with either Continental or U.S. Airways soon, the people said. American's talks with U.S. Airways were not serious at this point, one person said.[1] United Airlines is in merger talks with U.S. Airways after being rejected as a suitor by Continental Airlines, five people familiar with the discussions said.[20] In the wake of the Continental Airlines board of directors' unanimous decision Sunday to abruptly end merger talks with United, Tilton must now decide whether to pursue a merger with the only remaining candidate -- a very tattered U.S. Airways -- or try to carry on as is. There are huge downsides to both options, which is sure to complicate Tilton's decision-making process.[21]
Light, sweet crude for June delivery rose to $118.75 a barrel on the New York Mercantile Exchange. Neidl said rival carrier Continental Airlines Inc. would have made a stronger merger partner than U.S. Airways Group Inc., though he was not surprised that the former ruled itself out. "If the company is to recover, with or without a merger, a major restructuring will be necessary and is now under way as the company sharply cuts its domestic capacity," Neidl said.[22] United's parent company, UAL Corp. (Nasdaq: UAUA), also has been looking at mergers in the wake of the Delta/NWA plan. Its potential partners include Continental Airlines and U.S. Airways.[23]
As the Wall Street Journal reported on Apr. 27, any deal would likely see United'''s pilots''' wages rise to match rates at Continental. That could have largely undone much of the salary and pension cutting UAL did in its lengthy Chapter 11 case, and threatened to jeopardize Continental'''s relatively smooth relations with its own pilots. It appears Continental'''s board took a hard, sober look at the near-future landscape, circa 2009, and did a cost-benefit analysis of the new Delta-Northwest'''s prospects and a potential United-US Airways combination. Even if oil retreats some from its current level, the new Delta will have to make so many jobs and service pledges that its costs likely won'''t impress Wall Street. United and U.S. Airways, if they proceed, will face the task of integrating three pilot groups atop the two that U.S. Airways CEO Doug Parker has struggled with since his America West acquired the old U.S. Airways out of bankruptcy in 2005. The other question to ponder: What would Continental gain from being part of a much, much larger airline that includes United? It would gain scale, of course, becoming the world'''s largest carrier. It would gain some lucrative Asian routes it does not currently fly, and access to Australia. It would also acquire a larger maintenance/repair operation and bigger frequent-flier program ''' both of which sport healthy margins far above air transport.[24] Now that a proposal for Delta Air Lines (DAL.N: Quote, Profile, Research ) to swallow Northwest Airlines (NWA.N: Quote, Profile, Research ) is under U.S. antitrust review with good prospects for approval, according to several experts, attention has shifted to United and its talks with U.S. Airways Group Inc (LCC.N: Quote, Profile, Research ) and Continental Airlines Inc (CAL.N: Quote, Profile, Research ).[15] American Airlines' talks with Continental are focused on forming an alliance that could share passengers, much like the SkyTeam partnership that includes Air France-KLM (AIRF.PA: Quote, Profile, Research ), Alitalia (AZPIa.MI: Quote, Profile, Research ), Czech Airlines, Delta Air Lines (DAL.N: Quote, Profile, Research ), and Northwest Airlines (NWA.N: Quote, Profile, Research ), the people said. Alliances have flourished in the industry because they generate profits through marketing programs and flight code-sharing without the headaches of combining operations.[1] We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term." The airline acknowledged that record fuel prices, a slow economy and the weak dollar have dampened the current industry environment but noted that "we must continue to adjust our business model to ensure we sucessfully navigate through these difficult times so that in the future we can once again grow and prosper." After Delta Air Lines Inc. (DAL) and Northwest Airlines Inc. (NWA) earlier this month unveiled plans to merge, Continental said it may consider strategic options to remain a strong long-term competitor.[25] Thanks to financial pressures that began with the 2001 terrorist attacks and have only worsened as fuel prices have soared, complimentary coach meals have become an endangered species. Continental is the only major U.S. airline that still offers complimentary meals -- designed by their "Congress of Chefs" -- in economy class for domestic travel. While most of the gourmet action is in first class, Delta Air Lines enlisted celebrity chef Todd English to design its fee-based coach meals -- a chicken bistro salad with goat cheese crostini and organic spinach for $8 -- available on certain flights longer than 2 ' hours. "There is no question that competition is fierce in this industry and we are looking for ways to differentiate," says Frank.[26]
The merger dance comes at a time of great uncertainty for most U.S. carriers. With jet fuel prices skyrocketing and both business and leisure travelers paring back flying, airlines are losing business and watching their stock prices plummet. United last week reported a first-quarter loss of $537 million, announced layoffs, cut back capacity and had to fend off questions about its overall financial health. United is managing $8 billion in debt, and analysts think the airline and peers such as American, Delta and Northwest all could violate loan terms this year if oil prices continue to rise.[27] "Every U.S. carrier, including Continental, is under enormous pressure from record high fuel prices, a slowing U.S. economy and a weak dollar," Kellner told employees. "In today's harsh environment, we must continue to adjust our business model to ensure we successfully navigate through these difficult times, so that in the future we can once again grow and prosper." Continental expects to spend $1.2 billion more on fuel this year than it did in 2007. To cope with the added cost, the airline plans to take some older, less-fuel-efficient planes out of service over the next 12 months and to reduce its U.S. capacity by 5 percent beginning this fall.[28]
There are ways a UAL-US Airways merger makes sense, S&P; said in a special report. Employees of both airlines took pay cuts in bankruptcy, and their pay scales are fairly similar. When two airlines merge, the resulting labour compensation tends to rise to the level of the better paid employees, rather than fall to that of the lower paid employee group, and Continental's employees are better paid than those of UAL. Thus a merger between these two might well have led to new labour contracts that would have raised employee compensation at a time when the two airlines would have been under intense cost pressure because of high fuel prices.[12]
Continental executives appeared to have gotten cold feet, a United source said. "We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengthswhich we believe would be placed at risk in a merger with another carrier in today's environment," Kellner and Continental President Jeff Smisek said in a letter to employees released Sunday afternoon. Sources said that United is now turning to U.S. Airways, with which it unsuccessfully attempted to merge earlier this decade.[27] Continental Airlines Inc. (CAL) on Sunday said its board met earlier today and unanimously supported management's recommendation to not merge with another airline at this time. Continental said its board very carefully considered all the risks and benefits of a merger and determined that the risks outweighed potential rewards compared to its prospects on a standalone basis. "We have significant cultural, operational and financial strengths compared to 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," CEO Larry Kellner and President Jeff Smisek said in a statement.[25]
Most of the major carriers in the United States are getting ready to merge, while in the United Kingdom, British Midland (BMI) may soon be bought up by one of continental Europe's largest airlines. According to a report in the Sunday Times, United Airlines and Continental Airlines will formally declare that they are in merger negotiations, thus following the example set by Delta Air Lines and Northwest, both of which announced their merger plans earlier this spring.[29] A merger may help United compete with the pending combination of Delta Air Lines and Northwest Airlines, as well as recover from a $537 million first-quarter loss. United was forced to shift its sights Sunday after Continental said it would remain independent. "UAL's standalone plan is not viable," Daniel McKenzie, a Credit Suisse analyst based in New York, said today in a report to investors, citing a projected decline in its cash position to $1.3 billion by the end of 2009.[20] The news of two possible deals comes two weeks after Delta Air Lines ( DAL, Fortune 500 ) and Northwest Airlines ( NWA, Fortune 500 ) reached agreement on a merger deal that - if approved - would create the world's largest airline.[30] America's airlines have held on-off merger talks for most of the last decade, but rocketing oil prices and a deal between Delta Air Lines and Northwest Airlines a fortnight ago have brought matters to a head.[19] The Parker memo and new merger talk comes on the heels of Delta's proposed union with Northwest Airlines in a $17 billion deal.[23]
Bloomberg News and the Associated Press, among others, reported that United, the second-largest airline, and U.S. Airways, the seventh-largest, were in advanced talks and expected to be able to announce a deal within weeks. Now, if Tilton is to get his merger, he must deal with U.S. Airways, which has been beset by major problems since its merger nearly three years ago with America West. U.S. Airways wound up dead last among all legacy airlines in the respected 2007 Airline Quality Rating Report released earlier this month. That's a sure sign United isn't dealing with a class act in commercial aviation, as well as a reason for United's loyal customer base to be worried about the fallout from a merger with U.S. Airways.[21] United also has explored merger possibilities with U.S. Airways and American Airlines, deals that would be difficult to consummate, say people familiar with the talks.[3]
American Airlines is in talks with U.S. Airways, but is talking to Continental about a marketing alliance that could derail the United plan, industry sources said.[19] "We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term,'' Kellner said. Delta, Northwest and Air France-KLM, Europe's largest airline, earlier this month won approval from U.S. regulators to collaborate on international flights within the alliance. The decision allows them to funnel passengers to each others' networks and to operate more like a single entity by cooperating on route planning, marketing and setting fares. The decision put new pressure on AMR Corp.' s American Airlines, which doesn't have such immunity with British Airways Plc, its primary partner in the competing Oneworld alliance.[7] Continental has long been a member of SkyTeam, along with some of the largest airlines in the world, including Air France and Delta. Larry Kellner, Continental's CEO, confirmed that his company is "considering alternatives" and plans to "carefully evaluate" whether membership in another alliance would better serve the carrier's interests. Many in the world of finance had hoped that Continental would, indeed, go ahead with its merger plans. Such a fusion would not have been easy and would have also carried certain risk. The most important problems included the fact that Continental and United employees belong to different labour unions, and also that both carriers have significantly different fleets, which would further complicate any potential merger. These considerations probably influenced the board, as it considered its options. Spread the word: These icons link to social bookmarking sites where readers can share and discover new web pages.[31] A combination with another carrier could place at risk Continental's "significant cultural, operational and financial strengths,'' Kellner said in the message to the airline's 45,000 employees. Continental will continue to review its membership in the global SkyTeam alliance, which also includes Delta and Northwest, along with Air France-KLM.[7]
Continental Chairman and Chief Executive Lawrence Kellner said in a message to employees that the Houston-based airline was better off alone than merging. "We have significant cultural, operational and financial strengths compared to 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.[28]
Kellner had long said Continental would prefer to remain independent — if the landscape of the airline industry stayed the same. Kellner opened the door to merger speculation this month by saying that the Delta deal had changed the landscape, and by exercising a right to buy out Northwest's veto power over a Continental merger — although that move cost only $100 once Northwest agreed to be purchased by Delta.[28] "If not U.S. Airways, who is left? Alaska Airlines?" said Joe Brancatelli, the publisher of Joe Sent Me, a newsletter for business travelers. At the core of the industry crisis is the cost of jet fuel, which was $16.4 billion for U.S. passenger and cargo airlines in 2000, grew to $41.2 billion in 2007 and is expected to reach $59.5 billion this year, according to the Air Transport Association, representing major airlines. Delta and Northwest made a point of saying they could better manage that burden if joined, but critics say consumers are the inevitable losers in consolidation. "They call them synergies, but that means cutting labor and service and they will fly people through a smaller hub network," said Mark Cooper, research director of the Consumer Federation of America, in Washington.[32] "While we understand the financial pressures under which the major airlines have been operating, it is also vital that airline consolidation does not lead to fare increases and service reductions." Labor unions say they will scrutinize any proposed merger. "It looks like another major bad idea from an airline that pursues bad ideas," Joe Tiberi, a spokesman for the International Association of Machinists and Aerospace Workers, said of United's interest in U.S. Airways. "They're looking to consummate a deal rather than run the airline and be profitable." U.S. Airways has been faulted for failure to integrate operations three years after its merger with America West Airlines. The major flaw is the lack of a seniority list for its pilots.[32] Should United Airlines, based in Chicago, and U.S. Airways, in Tempe, Ariz., reach an accord, it will be deja vu to some because United and U.S. Airways courted in 2001. They scrapped a planned $12.3 billion merger after the Justice Department said in July of that year the deal would boost fares and limit access for millions of travelers.[32]
Shares in U.S. Airways closed Monday at $8.62, up $1.46 -- their biggest dollar gain since Feb. 1. The 20 percent jump was the largest percentage gain since U.S. Airways and America West Airlines approved their merger in September 2005.[10]
U.S. Airways shares jumped after The Associated Press, citing a person close to the negotiations, reported the Tempe, Ariz. -based company is in very advanced talks with UAL Corp.' s United Airlines which could lead to an announcement of a combination within two weeks. The source asked not to be named because of the sensitive nature of the talks, and representatives of both airlines said they do not comment on rumors or speculation about consolidation.[33] The changes come the day after Continental said it had no immediate plans to consolidate with another airline after rumors it was in talks with UAL Corp. (nasdaq: UAUA - news - people ), parent of United Airlines. Higgins cut his price target on UAL Corp. to $30 from $37, but kept a "Buy" rating. For the year, he now expects a loss of $10.75, compared with a previous estimate for a $6 loss and analysts' $7.23 loss expectation. For America Airlines parent AMR Corp. (nyse: AMR - news - people ), Higgins lowered his 2008 outlook to a loss of $8 per share from a loss of $7.50 per share, below other analysts' average estimate for a loss of $5.15 per share. He kept his $9 price target and "Hold" rating. Higgins changed his price target for Alaska Air Group Inc. (nyse: ALK - news - people ) to $22 from $26 and his 2008 outlook to a loss of 65 cents per share from a profit of $2.05 per share.[34] Analyst James M. Higgins's changes come after oil touched a high just under $120 a barrel in overnight trading. He dropped his price target on Continental Airlines Inc. (nyse: CAL - news - people ) to $30 from $32 and cut his 2008 outlook to $3.50 per share loss from $1.85 per share loss.[34]
NEW YORK (Associated Press) - Shares of Continental Airlines Inc. fell Monday morning after the company said it would stay independent, dispelling rumors it would combine with United Airlines parent UAL Corp. to create the world's largest airline.[35] NEW YORK, April 27 (Reuters) - Continental Airlines Inc (CAL.N: Quote, Profile, Research ) has called off talks with United Airlines (UAUA.O: Quote, Profile, Research ) because of United's weak financial condition and a feeling that a merger would risk its own financial health, a source briefed on the matter said on Sunday.[2] PHILADELPHIA (Reuters) - The parent of United Airlines, which held unsuccessful merger talks with Continental Airlines Inc (CAL.N: Quote, Profile, Research ), said on Sunday it would pursue all options to ensure a sustainable future.[36]
Abruptly ending talks with United Airlines parent UAL Corp., Continental Airlines Inc. said it would stay independent for the time being despite efforts by rival carriers to merge. The Houston-based airline didn't disclose details of talks in its statement late Sunday and didn't name potential partners. Its move was seen as a rebuke to Chicago-based UAL, which has been trying to interest Continental in a marriage for years.[37] April 27 (Bloomberg) -- Continental Airlines Inc., the fourth-largest U.S. carrier, said it decided to remain independent after weeks of speculation that it would merge with United Airlines. Continental's board unanimously approved a recommendation from its executives following a "comprehensive'' review that included outside financial and legal advisers, the airline said in a message to employees.[7]
Talk of a deal between U.S. Airways and United comes one day after Continental Airlines Inc. said it will remain independent, ending rumors about a possible tie-up with United.[33] Chicago-based United and Tempe, Ariz. -based U.S. Airways Group Inc. have been in preliminary talks for weeks about possibly teaming up, although United had focused more recently on joining with Continental. As the second- and seventh-largest U.S. airlines by traffic, both are under more competitive pressure to consolidate in the wake of the proposed creation of the Delta-Northwest mega-carrier.[9]
Ray Neidl, an analyst with Calyon Securities, said Continental's exit leaves U.S. Airways Group Inc. as a potential merger partner for United. The CEOs of United and U.S. Airways are both vocal proponents of airline mergers.[28] Oneworld may turn out to be a good match for Continental, said Dan Kasper, an industry consultant with LECG in Cambridge, Mass. "Continental may be able to play a more important role and do financially better in that alliance" than it would in the others, he said. "I think what Continental really wants to do with American and British Airways is to integrate their routes much more than current antitrust regulations would allow," Werner said. "If they don't get that, I really think the Oneworld alliance is the only one left for them." An alliance is an arrangement that allows airlines to piggyback on each other's routes, advertise their brands together and issue a single ticket to customers who may switch to the other partner's plane midway through a trip. Domestic airlines typically use alliances to extend their reaches into countries they don't serve. "At least in the international arena, it might be described as an alternative to a merger because you can capture a lot of the revenue synergies and avoid the difficulties of trying to merge the carriers," Kasper said.[16] Continental may have ruled out a merger for the moment, but it may still partner up with a rival through a marketing alliance as the industry reshuffles. Such a scenario could help the Houston-based carrier achieve a key goal of a merger ' the expansion of international service ' while sidestepping some of the messy regulatory and labor issues involved in melding two major airlines.[16]
Continental, which had been in talks with UAL Corp.' s United, said it now will focus on a possible shift to a new global airline alliance. "The risks of a merger at this time outweigh the potential rewards,'' Chief Executive Officer Larry Kellner said in the letter.[7] Calyon Securities downgraded UAL to neutral from add, citing failed merger talks with Continental Airlines (nyse: CAL - news - people ).[38] United Airlines suffered a setback Sunday when Continental Airlines called off merger talks.[21]
Talk of the two carriers teaming up grew Monday after the head of Continental Airlines -- widely seen as United's preferred merger partner -- said Sunday night that the airline would remain separate.[10] Continental had called off talks with United due to the other carrier's weak financial condition, and "the increasing cost of oil increases the risk of doing an airline merger," a source briefed on the matter told Reuters on Sunday.[36] Continental called off talks because of United's weak financial condition and a feeling that a merger would risk Continental's own financial health, a source told Reuters on Sunday. UAL shares have lost nearly 60 percent of their value this year and fell sharply again last week after the company reported a quarterly loss of $537 million.[14]
Talk on Wall Street and comments posted on aviation message boards of late have centered around a merger between U.S. Airways and Chicago-based United, the airline of UAL Corp. (NASDAQ: UAUA).[39] U.S. Airways Group Inc. and United's parent, UAL Corp., were reported by the Associated Press and others to be in advanced merger talks. Quoting a person it said was close to the negotiations, the AP said U.S. Airways and United expected to announce within two weeks that they were combining. Neither U.S. Airways nor United would comment on the report of their talks.[8]
Talk on Wall Street, new reports (including an Associated Press story Monday saying merger talks were hot and heavy) and comments posted on aviation message boards of late have centered around a possible corporate marriage between U.S. Airways and United.[23]
A bigger issue may be labor -- specifically, infighting among U.S. Airways pilots nearly three years after the merger of the former U.S. Airways and America West Airlines was announced. A seniority battle has kept the roughly 5,300 pilots from signing a joint contract and led to the ouster of their longtime union in favor of a new Charlotte-based group.[10] U.S. Airways pilots, meanwhile, are unhappy about what has been an awkward merger with America West. "Labor distrust at both airlines is so bad that there would likely be operational problems," said Henry Harteveldt, an airline analyst at Forrester Research in San Francisco. He added, "United-US Airways would be a disaster. U.S. Airways has not shown it can manage itself well with its current merger. The best thing for United would be for an investment group like Texas Pacific to buy the airline, get rid of its overpaid, ineffective CEO, dump the board and work to get the airline back into good shape.[32] Industry analysts say any U.S. Airways merger would only further complicate pilot seniority issues the airline and its newly elected pilot union are facing.[39]
Some may be business strategy, just in terms of discussions and discovery," said Henry Harteveldt, industry analyst with Forrester Research, Inc. Noticeably absent from the merger speculation is Southwest Airlines Co., the only major U.S. airline to earn a profit during the first quarter, when crude oil prices broke through the $100-per-barrel barrier for the first time.[3] Continental lost $80 million in the first quarter, the lowest amount of any major U.S. airline; United lost $537 million, six times Continental's losses. In this climate of a slowing economy, weak dollar and soaring fuel prices, higher losses in the industry are more likely than higher profits. Consolidation is no defense against the former or guarantee of the latter.[40] Lufthansa has expressed interest in buying a further 50 percent stake in BMI-which will be up for sale before the end of the year-but British Airways and Virgin Atlantic also seem willing to buy a stake. It is not surprising that BA and Virgin would both want to take control of BMI, considering that British Midland is the second largest airline operating out of Heathrow, and it thus has access to a significant number of highly valued landing slots. Some airline industry analysts predict that BMI chairman and majority shareholder Michael Bishop may be looking to find a buyer other than Lufthansa, as he has yet to formalize anything with Germany's flag carrier. The current consolidation in the airline industry is being driven by record high fuel prices and the economic slowdown, both of which are making it much harder for carriers to turn a profit. Spread the word: These icons link to social bookmarking sites where readers can share and discover new web pages.[29] U.S. Airways and United have declined to comment. Leaders at both airlines are big backers of airline consolidation, especially as rising fuel prices have led most carriers to post significant losses this year.[10] U.S. Airways CEO Doug Parker has done little to calm the speculation. He sent a memo earlier this month to U.S. Airways employees saying consolidation is needed in an airline sector hit by high fuel prices and tight operating margins.[23]
"Every U.S. carrier, including Continental, is under enormous pressure from record high fuel prices, a slowing U.S. economy and a weak dollar," Kellner wrote. The airline isn't seen as being in quite the same straits as United, and Kellner argued in his letter that it had some operational strengths, including its trans-Atlantic route network and hubs in New York and Houston.[27] U.S. Sen. Charles Schumer said Monday he is worried that a possible merger between Delta and Northwest airlines could result in a reduction in air service and a spike in ticket prices at airports across Upstate New York, including Syracuse. Schumer said he expressed his concerns to Delta Chief Executive Officer Richard Anderson last week during a meeting between the two men. He said he told Anderson that demand for affordable and reliable air service remained strong in New York and that the merger should bring expanded, not reduced, flying options for New York air travelers. "I made it clear that this potential merger absolutely cannot jeopardize air service Upstate, and received several assurances from him that rates would not climb," Schumer said.[41] With Delta Air Lines and Northwest Airlines already planning to merge, that leaves United and U.S. Airways as the next best pairing, airline analysts said.[10] Delta Air Lines (nyse: DAL - news - people ) climbed 7.8% to $7.75 and Northwest Airlines (nyse: NWA - news - people ) surged 14% to $8.67. The companies said 2 weeks ago that they agreed to merge.[38]
The company says it will continue to review potential alliances and membership in SkyTeam. Airlines have been considering consolidation as a way to cut costs as they face the strain of record fuel prices. Delta Air Lines announced earlier this month it is acquiring Northwest Airlines in a stock-swap deal.[42] 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 has agreed to buy Northwest Airlines Corp. in a stock-swap deal that would create the world's largest carrier.[28]
The industry's contraction accelerated April 14, when Delta Air Lines and Northwest Airlines proposed a deal that would create the world's largest airline.[32]
A merger may help United stem two straight quarterly losses and compete against the combination of Delta Air Lines Inc. and Northwest Airlines Corp. United had to shift gears yesterday after Continental said it would stay independent.[13] Continental was considered the best fit for United by most analysts. Its network has very little overlap with United's, while the two carriers' pilot groups also fit well together and seemed likely not to suffer the integration issues that still must be navigated by another merger under way between Delta and Northwest Airlines.[27]
Do you really want to swim out to a drowning man and just get pulled down by them?" said Mark Adams. Though not identifying United by name, the Continental letter amounted to a stinging rebuke of its potential partner. The letter also raised new questions about the industry's direction given that the only healthy major carrier at the moment is discount-focused Southwest and that two other big players, Northwest and Delta, already have thrown in their lot together by announcing merger plans. Investors are pessimistic about prospects for all the legacy carriers because they all are saddled by high cost structures and have struggled in a cutthroat environment since travel fell off after the Sept. 11, 2001, terrorist attacks.[27] For the first time, all the major carriers, according to industry sources, are in play for possible mergers or stronger marketing alliances. Delta and Northwest announced their deal on April 14.[15] Subsequently, the Justice Department rejected the deal anyway. Seven years later, the same proposal would still provide United with a Southeast hub and access to key Northeast airports, the domestic compliments its vast international network has always lacked. The two carriers already code-share in 270 markets, and both are members of the Star Alliance, easing some merger logistics. This time, the price would no doubt be less than the $11.6 billion that United agreed to pay when it first committed.[17]
A deal could be finalized within the next few weeks and could include meaningful capacity cuts, the sources said. UAL, parent of United Airlines, is also thinking about broadening its global alliance network instead of striking a merger.[14] Continental is also in advanced talks with United Airlines (UAUA.O: Quote, Profile, Research ) for a full merger, the sources said.[1] People close to the talks say even though United Airlines ruled out combining with Continental, the airline may still be considering a merger.[11]
CHICAGO (AP) — United Airlines and U.S. Airways are in very advanced talks and expect to announce within weeks that they are combining, two people familiar with the negotiations told The Associated Press on Monday.[9] NEW YORK -- Several airline stocks staged a modest midday recovery Monday following a report that United Airlines and U.S. Airways are in advanced acquisition talks.[33]
U.S. Airways strength across much of northern U.S. makes it a potentially viable traffic feeder for American Airlines ' (nyse: AMR - news - people ) power in European routes. American has recently completed a new state-of-the-art terminal at New York's Kennedy Airport, aimed at beefing up its international power.[43] United's footprint at SFO is far larger than the carrier in second place, American Airlines, with 9 percent of the flights. U.S. Airways has 19 daily flights at SFO. It has nonstop service from San Francisco to hubs in Charlotte, N.C., Philadelphia, Phoenix and Las Vegas, and also serves Pittsburgh.[32] United is the world's second-largest carrier by passenger traffic, while Tempe, Ariz. -based U.S. Airways is the seventh-biggest in the United States. The combination would retain the number two spot once Delta completes its acquisition of Northwest to vault past American Airlines, now ranked number one.[13]
U.S. Airways, already smaller than most major U.S. carriers, also faces the prospect of being further marginalized as other airlines combine operations. It last merged with America West in 2005 and made an unsuccessful bid to combine with Delta last year.[10] Roughly a year after being spurned by Delta Air Lines, U.S. Airways Group Inc. is courting another rival: United Airlines.[23] The industry's third major alliance, Star, includes United Airlines as well as Air Canada, Lufthansa and U.S. Airways.[4]
One solution, Baker said, is to include in the deal a discount airline that could take some of the flights. U.S. Airways and United also could simply sell some of their gates at the Washington airports, Neidl said. Other analysts, however, said Washington shouldn't be a problem this time because of Baltimore/Washington International Airport, which has fewer U.S. Airways flights than in 2000.[10] U.S. Airways Chief Executive Doug Parker has done little to calm speculation regarding a new attempt at a merger. "Doug has certainly been a vocal proponent of consolidation when and where it make sense," U.S. Airways spokeswoman Michelle Mohr said last week, though she declined to specifically comment on a possible deal with United.[39] United is stronger in the Western states and across the Pacific. "The resulting network will be nothing as comprehensive as the Continental-United network would have been," said Robert W. Mann, an airline consultant based in Port Washington, N.Y. Mann added that a U.S. Airways-United merger would face "some complexities" in trying to combine its pilot workforces, especially since U.S. Airways has not merged the pilot groups at the former America West Airlines and the old U.S. Airways.[8] Mitchell, of the Business Travel Coalition, went further, calling the prospect of a U.S. Airways-United merger "kind of laughable" because of the customer-service complaints that followed U.S. Airways' linkup with America West. "Here you are," he said, "with U.S. Airways, the poster child for failed mergers, from a customer-service perspective, merging with United, one of the most dysfunctional companies in airline history."[8] The AP report did not indicate whether, if the merger were to take place, U.S. Airways would acquire United or vice versa. Nor was it clear whether U.S. Airways' or United's senior executives would come out on top, running what would be one of the world's largest airlines.[8]
Standard & Poor's analysts Philip Baggaley and Betsy Snyder noted that the two airlines' pay scales were "fairly similar," one reason a merger "makes sense." Wall Street analysts were taken by surprise by Continental's decision to remain independent, and at least one was not sure how much he liked a U.S. Airways-United combination. "We believe this signals Continental's confidence in its go-it-alone strategy and heightens the probability of a United/US Airways transaction, the only transaction that seems achievable in our view," said Goldman Sachs Group Inc. analyst Christopher Cuomo in a report to investors.[8] Although it reported an $80 million loss in the first quarter, Continental is widely viewed as the second-strongest U.S. carrier in financial terms, behind only Southwest Airlines Co., which has indicated it isn't interested in a merger.[28] NEW YORK -- Standard & Poor's Ratings Services said Monday that a decision by Continental Airlines Inc. not to pursue a merger with another carrier does not affect the airline's credit rating or outlook.[44] Continental is strong in Latin America and has high-traffic hubs in Houston and the New York area, with growing routes to Europe and Asia. These strengths can be exploited without multiplying Continental's financial liability. Houston Mayor Bill White applauded Continental's decision to reject a merger at this time. He noted that the airline is one of the city's largest employers. Its headquarters here also provides valuable civic leadership that a merger might have diluted.[40]
Shortly after the meeting adjourned at midafternoon, Kellner relayed the news to Houston Mayor Bill White, mayoral spokesman Frank Michel said. Not long after that, Continental issued a statement from Kellner and Smisek in a letter to employees: "We want you to know that our board of directors met today and has unanimously supported management's recommendation that, in the current industry environment, the best course for Continental is to not merge with another airline at this time."[45]
Analysts had seen a Continental-United link as a natural combination after the Delta-Northwest plan was announced. United Chief Executive Officer Glenn Tilton has advocated consolidation in the U.S. airline industry for at least four years, and Continental began reviewing its options after Delta paired with Northwest.[7] Isabelle Arthur, Air Canada's spokesperson, urged passengers to "pack lighter" in order to avoid having to pay the new fee. WestJet, Air Canada's main competitor on domestic routes, also suggested that it would introduce a new fee for all passengers planning to check a second bag, but it has yet to announce the specifics of this plan. In the United States, U.S. Airways, United, Continental and Northwest and Delta have all announced similar fees, earlier this spring.[46] Published reports Friday indicated that Ft. Worth-based American had pursued talks with U.S. Airways and an alliance with Continental. "Some of this may be positioning on the part of players.[3] United had been in talks with Continental, which on Sunday pulled out to explore a potential marketing alliance with AMR Corp's American Airlines and British Airways Plc.[14] American Airlines ( AMR, Fortune 500 ) and Continental Airlines are in meaningful and progressing talks towards an alliance, the same source said.[30]
The source also said Continental is in "advanced talks" with British Airways PLC (BAY.L: Quote, Profile, Research ) and American Airlines (AMR.N: Quote, Profile, Research ) about a potential alliance, with plans to seek antitrust immunity.[2]
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.[28] Continental is said to be in discussions with Fort Worth-based American Airlines about forming an alliance and possibly joining American's Oneworld program, the smallest of the three major marketing partnerships anchored by U.S. airlines.[16]
Now that it has rebuffed a proposed merger with United Airlines, Continental Airlines appears to be eyeing a partnership with American Airlines.[4] News agencies as late as April 25 were reporting that Houston-based Continental (NYSE: CAL) was still talking merger with Chicago-based United Airlines (Nasdaq: UAUA) as well as Dallas-based American Airlines (NYSE: AMR).[5]
United Airlines and Continental Airlines (nyse: CAL - news - people ), recently thought to be close to a deal, have called things off. To hear analysts tell it, any of these deals could happen.[43] Speculation rose regarding a possible United-US Airways deal after Continental Airlines Inc. (NYSE: CAL) on Sunday said it would not seek to merge with another airline.[39] There has been recent speculation that United Airlines and Continental might merge. Continental executives told employees that the risks of such a deal outweigh the potential rewards.[42]
Continental Chairman and Chief Executive Lawrence Kellner told employees Sunday the Houston-based airline was better off alone than combined with another carrier, ending speculation that it would join with UAL Corp.' s United Airlines.[44] Kellner walked much of the route, then joined the others and reviewed the presentation. He focused on how the company would tell employees. The second board meeting started at 2 p.m. Sunday, where Kellner's team made its recommendation to stand pat, via teleconference. After subsequent discussion by directors, they agreed by unanimous vote. Though Continental has declined to comment on whether it has had discussions with United Airlines, it's been widely reported for more than a year.[45]
Continental Chairman and CEO Larry Kellner said in a message to employees that the airline's board met Sunday and agreed unanimously that it is not in the best interest of the airline to pursue a merger.[42] In the letter, Chairman and Chief Executive Officer Larry Kellner and President Jeff Smisek write that "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 standalone basis."[5] Is M&A; perhaps not the path to success in this era of sky-high jet fuel prices? That seems to be what Continental Airlines is saying, deciding that it will remain an independent player regardless of what competitors do. The Houston-based airline said Sunday that its 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 standalone basis.'''[24]
After considering a merger with United Airlines, the management of Continental Airlines recommended that the company remain independent. Fortunately for both the company and Houston, Continental's board voted unanimously to accept the recommendation.[40] Although company officials haven't commented on how the Delta-Northwest merger would affect the alliance, many analysts believe that Continental would be forced out. "They're basically going to kick them out," said longtime airline analyst and consultant Darryl Jenkins. "So they're worried about being shut out of the international alliances, which could have a real impact."[4] An alliance, rather than a merger, would also allow Continental and American to increase revenue without the disruptions and costs of a merger. The airlines would avoid labor issues such as combining union seniority lists, which can cause long-lasting headaches. The airlines would also not have to integrate their operations or aircraft fleets.[4]
And, according to published reports last week, Continental has been discussing a potential alliance with Texas -based American Airlines.[27] In addition to past negotiations with United ' first reported in 2006 ' Continental also has talked with American Airlines about an arrangement, possibly a nonmerger alliance, but neither would comment about that Monday.[45]
"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." Earlier on Sunday, Continental said it had decided against merging with any other airline at this time but will explore alliances with other carriers.[36] HOUSTON (AP) — Continental Airlines is telling its employees that now is not the time for the airline to combine with another carrier.[42] The Continental pilots union, represented by the Air Line Pilots Association International, issued a statement Monday in support of the airline. "We've maintained throughout this process that we support management's preference to operate Continental Airlines as a successful, viable stand-alone carrier," said Capt.[5] The biggest obstacle to a deal, said someone familiar with talks, remains Continental executives' reservations about the disruption that integrating operations with United might bring to customer service and employee relations. Otherwise, talks between the carriers and their pilots unions have progressed smoothly. There is little overlap in the two carriers' networks or in their hubs, although Continental's Cleveland base and United's hub at Washington Dulles International Airport might be downsized in favor of Continental's hub at Newark International Airport and United's home base at O'Hare International Airport, sources said.[3]
Side talks between American and Continental may yet scupper the United deal. On this side of the Atlantic, BMI's future is again under scrutiny after Lufthansa said it was planning to take control. Stephan Gemkow, the German airline's chief finance officer, told analysts on Friday: "There are options that put us in a position to acquire the majority of BMI. we are determined to exercise these options."[19] UAL had recently entered formal merger talks with Continental, said people familiar with the matter, giving UAL the impression that it had the inside track on striking a deal with one.[37] A deal between Continental and United, a unit of UAL UAUA, was widely expected following a merger announcement by Delta DAL and Northwest NWA on April 14. Continental has now told its employees it will instead remain independent.[17]
Any merger announcement means months of regulatory review followed by a long implementation process, on top of hefty fees to lawyers and investment bankers. "It would be nothing but a distraction for the next several months," says industry analyst Bob McAdoo of Avondale Partners. McAdoo, who spoke to senior Continental managers over the weekend, said the company pulled out of its proposed deal with United mainly because it wants to wait for things--like the price of oil--to settle down a bit first.[43] Industry experts yesterday viewed a possible U.S. Airways-United Airlines merger as either the carriers' best chance for survival, or as a potentially doomed marriage of dysfunctional partners.[8] A U.S. Airways-United Airlines merger likely would preserve Charlotte as a hub for a giant carrier with service stretching from Bangkok to Kuwait, industry experts say.[10] A U.S. Airways-United Airlines merger would create a carrier rivaling the proposed Delta-Northwest airline in market share. It also could make Charlotte a hub in an airline that flies from the U.S. to Asia, Australia, Europe and South America.[10]
Aviation consultant Bob Mann said a U.S. Airways-American Airlines merger would not be a marquee matchup and would give American, currently the largest U.S. carrier, little extra depth overseas.[1]
Sen. Herb Kohl, chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, last week held a hearing looking into the Delta-Northwest merger. He said Monday that more will be scheduled to examine the impact of "this new wave of airline consolidation on competition and consumers." "A competitive airline industry is essential to both business and leisure travelers and to the health of the American economy," Kohl said.[32] Industry sources with knowledge of the matter said last week that merger discussions between United and U.S. Airways were heating up and that United soon would make a decision.[15] U.S. Airways has no presence in Latin America or Asia. It does have a major presence in the Northeast, but that is where airport delays are the worst. With Continental out of the picture, Tilton must decide: Can United get by without a merger partner? Or will Tilton take his chances with a last-ditch candidate like U.S. Airways? Either way, the going is sure to be rough.[21] "Clearly, Continental didn't want to be sucked into the dysfunctional United family," said Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition. U.S. Airways and United, under different managements, traveled this road before. They sought a merger in 2000, before both went through Chapter 11 bankruptcy reorganizations, but withdrew their application to the Justice Department when it appeared it would be turned down because it would have eliminated too much competition.[8] 'The principal drawback of a merger with U.S. Airways is that, while it would improve UAL's route system, it wouldn't create as strong a route network as would a combination with Continental,' S&P; said.[12] S&P; said a UAL-US Airways merger -- which also has the 'presumed benefit' of support from management -- would produce a fleet that's somewhat simpler and thus easier to integrate and maintain than would result from a UALContinental combination. The agency pointed out that UAL and U.S. Airways each have major market positions in the Washington D.C. area, which may have been a factor in UAL and U.S. Airways withdrawing their application for antitrust review for an attempted merger in 2001.[12]
One U.S. Airways union leader said employees are following the United merger speculation but are still focused on negotiating new contracts.[10] Combined, U.S. Airways and United have about 91,000 employees and annual revenue of $31.8 billion. Continental also needed to protect its reputation for above-average customer service, which could suffer if it linked up with United and its lower approval rating by passengers, another observer said.[8]
Monday's gain was partly a product of the carrier's depressed stock price, which fell from almost $37 a year ago to just above $7 on Friday. Over that period, shares in U.S. Airways lost more than 80 percent of their value.[10] Shares of U.S. Airways were up $1.16 or 16.2 percent to $8.32 while shares of UAL shed 38 cents or 2.5 percent to $14.83 on Nasdaq.[14] U.S. Airways shares jumped $1.09, or 15.2 percent, to $8.24. AP Business Writer Chris Kahn in Phoenix contributed to this report.[9]
United closed down 40 cents Monday, to $14.81 (its 52-week swing has been from $12.78 to $51.60), while U.S. Airways' shares were up $1.46 to $8.82.[32]
If the two airlines merge, chances are good that what's now U.S. Airways' hub at Philadelphia International Airport would continue to be a key part of the airline because of demand for domestic service by the region's large population, one of the experts said.[8] U.S. Airways and Northwest decided not to join the celebrity chef trend. U.S. Airways announced last fall it has upgraded its first class and fee-based coach menus to provide healthier and better quality food. "We don't think that customers really care who 'designed' their meals or that they choose which airline they're going to fly because of the celebrity chef. They just want the meals to taste good," U.S. Airways spokeswoman Valerie Wunder explained in an e-mail. This isn't the first time airlines have turned to celebrity chefs to dazzle passengers -- the trend has come and gone through the decades, Oliver says.[26] The Amex Airline Index rose 0.9 percent to 21.49 early in the afternoon, boosted by large gains for U.S. Airways Group Inc. and American Airlines parent AMR Corp. The broader market also advanced, with the Dow Jones industrial average rising 0.2 percent to 12,922.39.[33] A tie-up with U.S. Airways would draw serious opposition from United's unions, which don't want to get drawn into the labor wars of the Arizona-based carrier, sources said. United and American couldn't combine without divesting much of their O'Hare bases, where the two carriers combined account for about 80 percent of the traffic.[3]
U.S. Airways gained $1.12, or 16 percent, to $8.28 at 1:58 p.m. in New York Stock Exchange composite trading, after touching $8.36 earlier.[20] Investors traded Continental stock a bit lower Monday ' it was down 26 cents to $16.96 on the New York Stock Exchange.[45]
Continental was United's first choice as a merger partner because Continental was strongest in the East, with busy hubs at Newark, serving the New York area, and Houston, and extensive European and Latin American networks.[8] To say Delta and Northwest face a thorny path is an understatement. Workers in general see little advantage in these combos, and pilots in particular have a unique ability to hamper operations if they feel it is their ox that is bearing the brunt of the cost '''synergy''' goring management must zealously pursue in a merger. True Texan independents, neither American nor Continental has been enthused about the prospects of acquiring or being bought by a rival at this time. The hassles of integration are too mighty, and their respective belief that each has an advantageous standalone business plan too great.[24] "We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term," Kellner and Continental President Jeff Smisek said in a joint statement Sunday. Continental is rethinking its role in SkyTeam after fellow members Delta and Northwest announced plans for a merger earlier this month.[16] Continental, meanwhile, says it will focus on forming alliances with major players. It had been widely expected to drop out of the global marketing partnership SkyTeam after partners Delta and Northwest decided to merge.[27] A partnership with Continental would bolster American's route network, Mann said. That will become increasingly important if Delta and Northwest successfully merge and supplant American as the world's largest carrier.[4] Delta and Northwest offer service at airports in Albany, Binghamton, Buffalo, Rochester, Syracuse and the Hudson Valley. Schumer said he also made specific requests of Anderson to improve air service Upstate. He requested that Delta lower its business fares in Syracuse and that it operate 70- or 130-seat planes instead of the 50-seat aircraft it usually flies. Anderson agreed to look into both of the actions requested by Schumer, the senator said. Earlier this month, Delta and Northwest announced plans to merge the airlines, creating the world's largest carrier.[41]
Delta operates five daily flights to Atlanta, three to Cincinnati and three to Kennedy Airport in New York City, while Northwest operates four daily flights to Detroit. Kevin Schwab, air service development director for the Metropolitan Development Association, in Syracuse, said the two airlines, if merged, could reduce the frequency of their flights as part of an overall plan to reduce seating capacity, a move he said could create "upward pressure on prices." Schwab said Syracuse also could be hurt if the merged airline closed its Cincinnati or Detroit hubs because of their proximity to each other.[41]
NEW YORK -- A Calyon Securities analyst downgraded shares of United Airline's parent company and slashed its price target, predicting record fuel prices will continue to erode the company's revenue.[22] NEW YORK (Thomson Financial) - Shares of air carriers rose Tuesday for the fourth-straight session, as a drop in crude oil prices helped offset a downgrade of UAL Corp. and reduced expectations of further consolidation in the industry.[38]
Honestly, with crude oil over $110, we're even more risk-averse." Wright said, Southwest is focusing on striking code-share arrangements that would allow it to sell seats on other carriers that fly to the Caribbean, Mexico and Canada and to replace the code-share agreement it had with ATA, which went out of business this month. Southwest was also the only major player to see its share price increase, by 1.3 percent, in a week when the Amex Airline Index fell by 12.2 percent and crude oil topped $119 per barrel.[3] Some consumer advocates have pointed out that Air Canada is a trailblazer when it comes to creating new charges. Only a few weeks ago the Canadian airline announced that passengers who find themselves stranded at airports due to cancelled flights-caused by weather conditions and congestion-will have to pay a $35 fee in advance, if they want to be offered meal vouchers and a rebooking. Spread the word: These icons link to social bookmarking sites where readers can share and discover new web pages.[46]
Southwest Airlines (nyse: LUV - news - people ) rose 1.7% to $13.13, JetBlue Airways (nasdaq: JBLU - news - people ) advanced 3.4% to $5.13 and Alaska Air Group (nyse: ALK - news - people ) tacked on 2.7% to $20.55.[38]
Southwest's market capitalization of $9.3 billion is almost equal to that of the nation's six network carriers combined. That's because Southwest is seen as a safe haven in a turbulent industry, sheltered by a strong balance sheet and fuel hedges that allow it to pay about $1 less per gallon of fuel than its peers, analysts said. Despite the battering of their stocks, any merging carriers are likely to structure their deals as all-stock transactions. "It takes Wall Street out of the picture, and Wall Street is in no mood to finance airplanes right now," said Roger King, airline analyst with CreditSights Inc. "It you're just swapping stock, it could be done in your office."[3] WASHINGTON/CHICAGO (Reuters) - United Airlines seems to be the prime mover in the next industry merger, and a decision could come soon as carriers are forced to consolidate for survival.[15] The proposed merger is subject to federal regulatory approval. Susan Elliott, speaking for Delta, said the merged carrier would provide service to more small- and medium-sized communities than any other airline in the nation, giving them access to a route system that includes 390 destinations in 67 countries. "We've said all along that this is a merger of addition, not subtraction," she said. She said Delta's fares will remain "competitive" but that sharply rising fuel costs could require price increases.[41] Frank Werner, associate professor of finance at Fordham University, said a merged airline would have resulted in fewer seats in the air, allowing carriers to raise fares. It would have come at a cost to the reputation the carrier has spent more than a decade building. "What it would gain in savings and flight structure in a merger with United, it would lose in uniqueness," he said.[45]
People close to the carriers say the nation's second- and fourth-largest airlines have conducted lengthy, detailed talks for a merger that would create the world's largest airline.[3] Talk on Wall Street and comments posted on aviation message boards of late has centered around a merger between U.S. Airways and United.[47] "Long term, U.S. Airways probably needs a merger partner," said Ray Neidl, an analyst with Calyon Securities.[10] America West and U.S. Airways pilots still are trying to settle seniority issues years after the merger was formalized.[21] What's more, U.S. Airways CEO Doug Parker and his management team haven't exactly proved pros in the merger arena. By their own admission, the effort to mesh the U.S. Airways and America West reservation systems was a massive fiasco last year.[21]
United is reportedly pursuing a merger with fellow Star member U.S. Airways. That leaves Oneworld and its largest domestic member, Fort Worth-based American.[4] In 2001, the proposed U.S. Airways and United merger fell apart primarily because United lost interest, apparently believing the price to be too steep.[17] United and U.S. Airways failed in a merger bid in 2001 over competition concerns.[14]
Calyon said Continental would have been a stronger partner for UAL than U.S. Airways.[38] U.S. Airways lacks the strong international routes that made Continental an attractive partner.[28]
United talked almost daily with U.S. Airways even while pursuing Continental, said the people, who asked not to be identified because the discussions are private.[13]
All of which is why Continental'''s decision is quite a momentous conclusion. It flies in the face of the steady onslaught from jet fuel and the consolidation juggernaut sweeping U.S. airline C-suites this spring. Granted, pilots at both Continental and United had vowed to wage a vigorous campaign to protect their interests.[24] Talk of consolidation has become increasingly prominent in recent months as skyrocketing fuel prices and a weak U.S. economy threaten to throw airlines into a deeper tailspin.[15] "We believe that despite the challenges of high fuel prices and an uncertain economy, there are benefits to our pilots in maintaining independence," Pierce said. UBS analyst Kevin Crissey published a report Monday in which he said Continental management probably views consolidation as beneficial long-term but "much less so in the short run" because labor would eat up much of any savings.[45]
Credit Suisse analyst Daniel McKenzie said the decision was a "surprise" and increases risks to the stock. He downgraded the Houston-based company to "Underperform" from "Outperform" and slashed his price target to $13 from $31, implying he expects the stock to drop 25 percent from Friday's $17.22 close. "While some may argue that Continental stands to benefit from 'the operational mess' that many believe will emanate from those consolidating, we're more concerned about the loss of corporate travel business to competitors with superior networks," McKenzie said in a note to clients.[35]
United's first-quarter net loss -- a whopping $537 million -- coupled with Chief Financial Officer Jake Brace's refusal to predict what the carrier's financial situation might be by year's end, appear to have been key factors in Continental's abrupt decision to turn its back on United. Continental simply didn't want to hitch its fate to another airline whose prospects suddenly seemed dicey.[21] DALLAS (AP) — Continental Airlines Inc. said Sunday it would not pursue a combination with another carrier right away, a surprising move after weeks of growing speculation that it would join with United Airlines to create the world's biggest airline.[28] Last week, Continental and UAL Corp.' s (UAUA) United Airlines reportedly signed confidentiality agreements to engage in more focused discussions about a possible pairing.[25] Continental's decision stunned United's parent, UAL Corp., which had been in advanced talks with Continental and expected to complete a deal by early May. Last week, UAL reported a $537 million loss in the first quarter — its biggest loss since emerging from bankruptcy in 2006, and larger than Wall Street expected.[28]
The biggest obstacle to United's first choice, a person close to the talks told the Tribune on Friday, was Continental's management, which despite many weeks of talks was not convinced that a merger was the company's best strategy.[27] Chicago-based United has been pursuing talks with both carriers in recent weeks as it sought a merger partner to help strengthen its international network and boost revenues.[27]
Combined, the two have about 91,000 employees and annual revenues of $31.8 billion. Other details of their talks were not immediately known, including what the name or headquarters location of the combined carrier would be. As a significantly larger airline, however, United typically would prevail in those decisions.[9]
In a letter to employees, Larry Kellner, Continental's chief executive, said the airline is "considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term."[4] Houston-based Continental instead will focus on a possible shift to a new global airline alliance.[13]
The timing of any agreement remains hard to predict, and either side also could pursue an alliance instead or simply walk away from a deal, as Continental did. Representatives of both airlines said they do not comment on rumors or speculation about consolidation.[9] If the deal is approved by regulators, Delta-Northwest would be the world's largest airline and could marginalize Continental in the group, analysts said.[16] United Airlines, for example, is the world's fourth-biggest airline with a fleet of 460 aircraft, but has a stock-market value of only £850m, roughly one-quarter that of Ryanair. While analysts expect a United-Continental tie-up this week, no deal has been finalised.[19] The two airlines could announce a deal by the end of next week, The New York Times reports.[17]
Last week, inside sources told newspapers around the world that Continental had been in serious negotiations with United. While this speculation was indeed correct, Continental seems to have decided to stay out of the consolidation that is currently rather popular in the airline industry.[31] Responded to CO's retreat, UA chairman, president and CEO, Glenn Tilton, said, "With Continental's announcement.the dynamics in the U.S. airline industry continue to evolve."[6] Houston and Continental share a long and mutually beneficial history. Despite the turbulence that has buffeted the airline industry, they stand to have an equally long and rewarding future.[40] Responding to Continental's surprise announcement, industry analysts said that it may turn out to be a wise move by CO for being a smaller, and nimbler, airline may be a better proposition.[6] "Never-say-never in the airline industry. At some point, industry and economic conditions may force Continental to reconsider its position," he wrote in a client note.[33]
With almost every airline bottom line getting battered, Tilton clearly hungered for a merger with the well-run Continental, especially as Chicago-based United's financial picture quickly darkened during the past several months.[21] April 28, 2008, 7:45PM Flying solo Continental Airlines' board right to reject merger, maintain independence.[40]
Before Continental Airlines made any decisions about its future over the weekend, Larry Kellner went for a long walk. It wasn't exactly a pensive stroll ' the company's chairman and chief executive was joined by a few thousand others in a March of Dimes fundraiser that Continental sponsors.[45] Appearing to buck the trend, Continental Airlines, turned its back on current initiatives to say it will not merge with another airline.[6] Continental on Sunday afternoon abandoned the notion of merging with United, concluding it is not the "best course" to merge with another airline now.[32]
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," United Chief Executive Glenn Tilton said Sunday in response to Continental's decision.[27] As Continental CEO Larry Kellner and President Jeff Smisek noted Sunday in a memo to employees, Continental has great strengths unique to it. It has relatively good relations between management and employees that a merger, opposed by the pilots union, might have upset.[40] Continental decided to stay independent after concluding that the risks of a merger outweighed any potential rewards, chief executive Larry Kellner told employees in a letter Sunday.[13]
Executives worried that a tie-up to create the world's largest carrier would harm the culture that Continental CEO Larry Kellner had worked so hard to create, with an emphasis on customer service and healthy employee relations.[27]
Continental's options are limited. Joining the United-led Star Alliance, the largest of the three major partnerships, may not be a good fit now that Continental and United appear to be going their separate ways. That leaves the Oneworld program, which is helmed by American and includes British Airways and other international carriers.[16] U.S. Airways has 3,500 daily flights, with hubs in Phoenix, Philadelphia and Charlotte, N.C. Both carriers also have a number of international flights.[23] If U.S. Airways were the acquirer, Philadelphia would most likely remain the key East Coast domestic and international hub, industry consultant Richard S. Golaszewski said.[8] Industry speculation has United in talks with U.S. Airways for a possible tie-up.[6] U.S. Airways flight attendants also are in contract talks, said Mike Flores, president of the U.S. Airways chapter of the Association of Flight Attendants.[10] U.S. Airways jumped as much as 17 percent after the Associated Press reported the talks earlier today.[20]
In 2000, U.S. Airways and United tried to merge, but the deal was eventually blocked by the U.S. Department of Justice.[39] In 2000, U.S. Airways and United tried to merge in 2000, but that deal was blocked by the U.S. Department of Justice. Now there's speculation the two may try again -- and that they could announce a deal as soon as today.[23]
A deal with United likely wouldn't cause big changes in Charlotte, now U.S. Airways' largest hub, analysts and others said.[10] Many of United's approximately 7,000 pilots are known to be resistant to any deal with U.S. Airways because of the labor issues.[9]
Delta turned down an $11 billion offer from U.S. Airways (NYSE: LCC) in 2007.[23] A U.S. Airways spokesman says the carrier does not comment on rumors or speculation about consolidation.[18] In the same way, U.S. Airways could be attractive to United, a leader in the Asian markets along with the new Delta-Northwest entity.[43] Golaszewski, executive vice president of GRA Inc., a Jenkintown consulting firm, said Philadelphia was a more robust domestic connecting point for U.S. Airways than Washington Dulles Airport was for United. U.S. Airways' hub at Charlotte, N.C., its largest domestic hub, might not be so fortunate, he said. "I would think Philadelphia is in much better shape than Charlotte," he said.[8] By contrast, U.S. Airways' major East Coast hubs are in smaller metropolitan areas.[12]
U.S. Airways has more than 400 flights a day, including more than 20 to Europe in the summer, from Philadelphia, while United has fewer than two dozen on an average day.[8] Berard noted that after the first failed attempt to join with United, U.S. Airways merged with America West, making it even larger than it was in 2001.[32] On top of everything else, the U.S. Airways route system wouldn't prove much help to United.[21] "We don't comment on rumor or speculation," said U.S. Airways spokesman Morgan Durrant.[23] "We cannot comment on speculation or rumors," says Valerie Wunder, spokeswoman for U.S. Airways.[39]
At the time, it would have created the nation's largest airline - just as today a United-US Airways merger would vie with the combined Delta-Northwest for world's-largest-airline bragging rights. [32] "The real solution is reducing available seat miles by another 20%," says Calyon Securities airline analyst Ray Neidl. "That's the case with or without a merger."[43] Citigroup (nyse: C - news - people ) Analyst Andrew Light said that despite media speculation regarding further industry consolidation, AMR is unlikely to be a willing merger candidate.[38] The report, which followed news Sunday that Continental had decided not to pursue a merger with United, cited two unnamed sources who are "familiar with the negotiations."[47] Continental will choose either the merger or the alliance, not both, sources said.[1]
A spokesman for Continental's union pilots said pilots were pleased that the company won't pursue a merger, given the weak condition of other carriers.[28] The event just happened to fall between two crucial meetings of the carrier's board of directors, who capped a furious week of merger speculation by deciding at the second one Sunday that Continental should stay independent.[45]
The Delta-Northwest announcement allowed Continental to redeem a special preferred share that gave Northwest veto power over any merger involving Continental.[7] Northwest acquired the share in 2000, when it gave up a controlling stake in Continental because of opposition from U.S. antitrust regulators.[7]
Analysts polled by Thomson Financial expect, on average, a loss of $2.04 for the year. Continental will likely maintain a high level of liquidity this year, said Higgins, who kept a "Buy" rating on the shares.[34] Shares of Continental fell 4.2 percent to $16.48 while shares of UAL declined 6.6 percent to $14.20.[48] UAL shares fell 93 cents, or 6.1 percent, to $14.28. Other gainers included AMR, which rose 26 cents, or 3.5 percent, to $7.69, and Delta Air Lines Inc., up 10 cents to $7.11.[33]
United's shares tumbled 37 percent on April 22 after the airline reported a first-quarter loss wider than analysts expected and some investors questioned whether the carrier had sufficient cash to meet loan covenants.[7] Wrigley shares gained 24 percent to $77.30 after closing at $62.45 on Friday. Visa Inc. shares rose 2.2 percent to $76.80 after several analysts began coverage of the company with positive ratings ahead of the credit card company's first quarterly earnings report since its initial public offering.[48] Ray Neidl lowered UAL Corp. to "Neutral" from "Add" in a note to investors early Tuesday. He also cut his price target to $12 from $30 and nearly tripled his expected loss for the company in 2008. Record-high oil prices are eating into the company's cash flow, Neidl said, widening his 2008 loss forecast to $7.55 per share from $2.55.[22]
The surprise move came after weeks of growing speculation that it would join with UAL Corp.' s United Airlines to create the world's biggest airline.[48] United Airlines Second-largest U.S. airline 2007 revenue: $20.1 billion.[8] United, which said the concerns were unfounded, is cutting 1,100 jobs and further reducing capacity after the loss. Continental, which had a first-quarter loss of $80 million, said on April 17 it would ground 14 older, less fuel-efficient aircraft on top of 34 it already planned to stop flying and would trim capacity by an undetermined amount at its regional airline partners.[7] Continental would have faced challenges in a tie-up with United, including meshing labor groups and different fleet types as well as deteriorating market conditions that contributed to United's $537 million first-quarter loss, said Robert Mann, head of R.W. Mann & Co., an airline consultant, in an interview. "It's like trying to catch a falling knife,'' he said.[7]
''Continental Airlines-America's fourth largest commercial carrier-finally addressed rumours that it was planning on merging with United Airlines by telling journalists that it would instead remain independent, at least for the time being.[31] Don'''t forget another crucial component in Continental'''s calculus: oil prices are culling rivals right and left. The board'''s decision came down on the same day that Eos Airlines flew its last flights across the Atlantic.[24] If you'''re Continental, you are watching high fuel costs clear competitors out of your way and setting the groundwork for future profits. Continental'''s decision also highlights the risk many observers minimize in their thinking about which airlines may combine and the advantages thereof.[24] Airline shares are sensitive to movements in the energy markets because fuel represents one of the industry's biggest costs.[33] As with other airlines, competition and fuel costs are a concern of Alaska Air, but liquidity is very strong, said Higgins, who kept a "Hold" rating on the shares.[34]
The regulation applies to all passengers traveling in economy class, on flights within North America. Those in economy flying on any of Air Canada's international routes will still be able to check two pieces of luggage for no additional charge. Canada's flag carrier has tried to justify its decision to implement the new $25 fee by pointing to the rising cost of fuel, as well as the example set by other carriers.[46] Air Canada's new $25 fee is just one of many examples of how Canada's flag carrier is now charging for services that have long been free of charge.[46]
Air Canada is following in the footsteps of other major North American airlines and will start charging passengers $25 if they wish to check a second piece of luggage. [46] Americans Airlines is also reportedly looking at ways to cooperate with other carriers, specifically British Airways.[29] Perhaps just as important to consumers, several smaller airlines, Aloha Airlines, ATA Airlines and Ohio-based Skybus Airlines, as well as New York-based business class carrier Eos Airlines, have recently declared bankruptcy and shuttered operations.[32]
Every major carrier has set plans to lower capacity, led by AirTran and Delta. The nation's No. 4 airline decides its best course is to fly solo in the current industry environment.[17] The union did not immediately respond to a request for comment Monday. Airline industry consultant Robert Mann said he doesn't see a lot of positives in a United-US Airways combination. "The place where the network is really missing is on the Atlantic," he said.[9] The announcement scotched all industry speculation that it was looking to tie-up with United Airlines. At its end, United said that it would continue to "pursue all options."[6] The consolidation of the commercial airline industry is also being felt in the UK.[29] The scramble for industry consolidation is rooted in gravity-defying jet fuel prices and significant losses after two years of a rather nice recovery.[32] Just not right away. For now, the industry needs to catch its breath and deal with record fuel prices and a slumping economy. That means keeping its eye on the ball.[43]
Lots of Airbus A319s and 320s to try to integrate with Continental'''s modern 737 domestic fleet. You see what I'''m getting at here: the big advantages Delta and Northwest hope to achieve from their deal were not on the table for this transaction. [24] SkyTeam includes Air France/KLM, Alitalia, China Southern and other international carriers as well as Continental, Delta and Northwest.[4]
Bill Moseley, a Transportation Department spokesman, said the office had not received any new applications from Continental for antitrust immunity. Such an application would be the first step in forming an alliance with another carrier.[16] For consumers, the payoff is the convenience of booking through one carrier and membership in frequent-flier programs, which have potential to accrue more miles if multiple airlines are in the alliance.[16] The carrier's board did confirm one important change-it is now contemplating switching airline alliances.[31]
The U.S. Department of Transportation must give antitrust approval when domestic carriers seek to form an alliance for international routes. It may also intervene if the alliance involves domestic routes.[16]
In the final analysis where it may really come out trumps is in possessing and the most fuel-efficient fleet in the U.S. Analysts point out that it has the best new aircraft order book among the major network carriers.[6] Several insiders said that a new merger proposal would be different due to changes the two carriers made while in Chapter 11 bankruptcy protection and due to the recent growth of low-cost carriers.[14] United has maintained a strong presence in Asia since purchasing routes from Pan Am two decades ago. With the region becoming increasingly important to business travelers, those routes are now the biggest carrot the carrier has to appeal to a potential merger partner. "If what we end up with is six legacy carriers being reduced to three, then two of them will have an Asian presence," McAdoo says, citing Delta-Northwest and whichever carrier ends up partnering with United.[43] Some experts say any mergers among major carriers today would face less trouble getting government approval because of the losses most carriers are facing because of record oil prices.[8] While a merger with a larger carrier might have brought efficiencies and more passengers over the years, the risks were even greater.[40]
UAL's stock market value plunged 35 percent. Glenn Tilton, UAL's chairman and CEO, signaled late Sunday that he would still pursue mergers even after Continental's pullout.[28] American and Continental may also be preparing announcement in the wake of the Delta-NWA merger.[30]
Continental has many pluses that it can bank upon to pull it through tough times, including lucrative hubs in Newark and Houston, a growing international presence, with a particularly strong Latin American network.[6] A combination of Continental and Chicago-based United would have surpassed the planned Delta-Northwest tie-up as the world's largest carrier. That rank, based on passenger traffic, is now held by American. "It shows the staunch independence and what Continental views as their durability in this sort of a market,'' Mann said.[7]
The likeliest combination remains a tie-up of Chicago-based United and Houston's Continental Airlines.[3] United's losses might have brought about the split with Continental Airlines.[32] In this Jan. 16, 2007 file photo, Continental Airlines jets parked at gates at George Bush Intercontinental Airport in Houston, Texas.[28]
Continental is the seventh largest commercial-passenger airline in the Dallas-Fort Worth area, according to the Dallas Business Journal's 2008 Book of Lists.[5] "People will choose to come back with us, creating repeat business and loyalty." Preparing and presenting airline food still has its challenges that even celebrity chefs can't alter. Airline meals are prepared cafeteria-style hours before they are served, and food 30,000 feet in the air doesn't behave the same way it does on the ground.[26] United is the dominant airline at San Francisco International Airport, operating 48 percent of all flights. It employs 10,000 people in the Bay Area, 5,400 working at the airport.[32] Between Dulles and Reagan National Airport, the two airlines would have about 63 percent of departures, wrote Jamie Baker, an analyst with JPMorgan, in a recent research note.[10] A Soleil-Solebury Research analyst slashed estimates and price targets on four airlines Monday, as crude prices rose higher and consumers appeared likely to fly less.[34]
United Airlines Chief Executive Glenn Tilton, who has been a proponent of consolidation, said the company's strategy is consistent. "Consolidation is underway - ensuring you have the right partner is everything," he said in a statement. [2] The Associated Press reported Monday that the airlines "are in very advanced talks and expect to announce within weeks that they are combining."[47] The source has asked not be named because the source has not been authorized by the airlines to discuss the talks.[30] The two carriers are in advanced talks and expect to announce within weeks that they are combining, the Associated Press reported Monday, citing as sources two people familiar with the negotiations.[32]
For weeks, media reports have quoted sources saying that Continental and United parent UAL Corp. have been discussing a proposal to combine.[24]
Continental held preliminary talks with American earlier, a person familiar with the matter has said.[7] Continental also was said to have talked with Fort Worth-based American about a potential strategic alliance. (Anything Continental and American do will most assuredly fall short of combining the airlines.)[24] Bringing Continental into the fold would give American more strength in New York, the country's largest business-travel market.[4] Continental's hubs in major trans-Atlantic gateway Newark, which serves the huge New York City metropolitan area, and in Houston would have filled gaps in United's route system, which is strongest in the Midwest, West, and across the Pacific.[12]
"UAL's standalone plan is not viable," Credit Suisse analyst Daniel McKenzie in New York told investors in a report, citing a projected drop in cash to $1.3 billion by the end of 2009.[13]
The airlines agreed to team up eight years ago, but United called off the planned $4.3 billion acquisition 14 months later in July 2001 after the Justice Department said it would sue to block it. [9] The carrier doesn't offer the same strong trans-Atlantic network as Continental, and it has been racked by labor infighting since it combined forces with America West nearly three years ago.[27] A spokesman for Continental's pilots union told The Associated Press that given the weak condition of the other carriers, "we are somewhat relieved" at Continental's decision.[27] Jay Pierce, chairman of the Continental pilots union, noted that the union has said it supported management's long-stated preference to remain a stand-alone carrier.[45]
Continental, which like United has been through bankruptcy, is also facing financial pressure. It lost $80 million in the first quarter and acknowledged in Sunday's letter that it is being squeezed. [27] There was speculation Sunday and Monday that United's overture to Continental failed because of the $537 million first-quarter loss it reported last Tuesday, making it an unattractive partner.[32]
Kellner tried to call Sen. Kay Bailey Hutchison on Sunday, but the two didn't hook up until Monday. Texas' senior senator issued a statement saying she was glad Continental had chosen not to merge.[45]
The U.S. majors rank among the world's largest carriers, but have fallen on hard times. [19] U.S. President George W. Bush arrives to speak to the media during a news conference in the Rose Garden of the White House in Washington on April 29, 2008.[49]
While it wouldn't kill a merger deal, King said, "that is probably the biggest hurdle of all." "Getting them together will be difficult, but it just takes the right incentives," he said. [10] Elliott said Delta and Northwest have promised not to close any hubs after a merger.[41]
SOURCES
1. American Airlines in talks with Continental, US Air | Industries | Autos & Transport | Reuters
2. UPDATE 4-Continental not merging with UAL; seeks alliance | Deals | Mergers & Acquisitions | Reuters
3. Pressure building on United, other airlines to merge -- chicagotribune.com
4. Star-Telegram.com: | 04/29/2008 | American looking toward Houston
5. New Continental letter silences merger talks - Dallas Business Journal:
6. domain-b.com : Continental backs off from merger games
7. Bloomberg.com: Worldwide
8. US Airways-United link: Survival or doomed wedlock? | Philadelphia Inquirer | 04/29/2008
9. The Associated Press: People close to talks say United, US Airways in discussions
10. Charlotte Business | Charlotte Observer
11. digtriad.com | Sources Say United, US Airways In Merger Discussions
12. United Airlines, US Airways partnership posited as likely combination - S&P; - Forbes.com
13. United now setting its sights on partnering with US Airways - The Boston Globe
14. UAL and US Air merger talks advance: sources | Deals | Reuters
15. United in merger spotlight with US Air, Continental | Reuters
16. Continental may try to grow through alliance, not merger | Chron.com - Houston Chronicle
17. United, US Airways May Give It Another Go | Transportation | CAL DAL JBLU LCC NWA UAUA - TheStreet.com
18. The Associated Press: AP source: United, US Airways in 'very advanced' combo talks
19. Bishop plays it cool as BMI bidders circle - Times Online
20. Sources: Jilted United quickly courting US Airways | Chron.com - Houston Chronicle
21. United Airlines CEO faces a tough choice :: CHICAGO SUN-TIMES :: Lewis Lazare
22. Ahead of the Bell: Calyon downgrades UAL, expects wider loss | Chron.com - Houston Chronicle
23. US Airways courting United Airlines for possible merger - The Business Journal of Phoenix:
24. Traveler's Check Independent in Texas - BusinessWeek
25. Continental Air Board Supports Mgmts Recommendation To Not Merge
26. Airlines enlist gourmet chefs to draw first-class fliers - CNN.com
27. United's merger quest is delayed -- chicagotribune.com
28. The Associated Press: Continental Airlines tells employees it won't seek merger
29. Airline industry set to undergo radical transformation
30. United and US Airways could announce merger decision soon - Apr. 28, 2008
31. Continental Airlines decides against merger
32. Jilted by Continental, United woos US Airways
33. US Airways, airline stocks rise on report of United deal | Chron.com - Houston Chronicle
34. Ahead of the Bell: Soleil cuts estimates on 4 airlines - Forbes.com
35. Out of the Gate: Shares of Continental Airlines slide
36. UAL Corp will pursue all options to ensure future | Reuters
37. Free Preview - WSJ.com
38. Airline sector gains for 4-straight session, as crude prices fall - Forbes.com
39. US Airways: No comment on United merger reports - Atlanta Business Chronicle:
40. Flying solo: Continental board right to reject merger | Chron.com - Houston Chronicle
41. Schumer to Delta: Help Upstate- Syracuse.com
42. The Associated Press: Continental Airlines tells employees it won't seek merger
43. Grounding Airline Mergers - Forbes.com
44. S&P;: Continental Airlines plans do not affect credit rating | Chron.com - Houston Chronicle
45. Continental's decision to fly solo took 2 board meetings | Chron.com - Houston Chronicle
46. Air Canada gets ready to charge extra $25 for luggage
47. Report: US Airways, United close to merger - Sacramento Business Journal:
48. Continental, UAL shares lower as deal is put off
49. United Press International - NewsTrack - Top News
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