Continental backs off from merger games

Appearing to buck the trend, Continental Airlines, turned its back on current initiatives to say it will not merge with another airline. 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." Industry speculation has United in talks with US Airways for a possible tie-up.

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 [of remaining independent]."

Responded to CO's retreat, UA chairman, president and CEO, Glenn Tilton, said, "With Continental's announcement. . .the dynamics in the US airline industry continue to evolve." Tilton said that UA management will do what is "right" for shareholders and employees.

Tilton has been a strong proponent of industry consolidation.

Meanwhile, 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.

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. In the final analysis where it may really come out trumps is in possessing and the most fuel-efficient fleet in the US. Analysts point out that it has the best new aircraft order book among the major network carriers.