Continental could leave current airline alliance - East Valley Tribune: Business

Continental could leave current airline alliance

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Posted: Friday, May 30, 2008 11:39 pm | Updated: 11:26 pm, Fri Oct 7, 2011.

DALLAS - Continental Airlines said Friday it is considering new alliance partners and may pull out of the SkyTeam alliance of carriers around the world.

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

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

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

Houston-based Continental has also talked with British Airways and AMR Corp.’s American Airlines about joining them in an alliance. BA and American are part of another group of carriers called the oneworld alliance.

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

The agreements can range from simply selling tickets aboard each other’s flights to more complicated arrangements in which carriers work together on prices and schedules. They face less regulatory scrutiny and labor opposition than full mergers, such as Delta Air Lines’ April agreement to buy Northwest Airlines Corp.

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

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

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

Airline industry experts said alliances let airlines offer more flights — even though they may be operated by a partner — without adding costs. That’s a key consideration when airlines are dealing with jet fuel prices that have nearly doubled in the last year.

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

Customers can get a wider choice of flights and usually get reciprocal mileage benefits from alliances. For example, if Continental and United struck a deal, Continental’s customers could presumably earn frequent-flier miles on United flights and vice versa for United passengers.

Swelbar said Continental would be eagerly sought by any of the global alliances because of its hub in Newark, N.J., serving the giant New York market, and its hub in Houston, where the oil-based economy is stronger than many other American cities. Darryl Jenkins, an airline management consultant in Virginia, said the benefits of an alliance include greater global reach, less risk than a merger and, mostly, the chance to bring in millions of dollars in additional ticket sales.

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

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

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

But it’s not easy to achieve.

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

Mike Boyd, a Colorado-based consultant who has advised many of the major carriers, said alliances may be less threatening to workers, who face job cuts or lost seniority when two work forces are combined.

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

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