Continental said to study options as UAL, US Air talk
Continental Airlines Inc., the fourth-largest U.S. carrier, is examining its options after the disclosure of merger talks between United Airlines and US Airways Group Inc., a person familiar with the matter said.
Executives at Houston-based Continental yesterday started their review, which includes whether to pursue discussions with UAL Corp.'s United, said the person, who asked not to be identified because the details are confidential. Julie King, a spokeswoman for Continental, declined to comment.
Continental called off merger talks with United, the third- biggest U.S. airline, in 2008 and opted to remain independent. Chief Executive Officer Jeff Smisek said last month that he remained open to a possible merger if the carrier felt the need to "bulk up defensively."
"A combination of United and Continental makes more sense," said Douglas Runte, managing director at Piper Jaffray & Co. in New York. Continental "is still reluctant to move, we believe, particularly since the current United-Continental alliance provides many of the benefits of a merger without any of the risks."
United and Continental formed a domestic marketing alliance and joint ventures for overseas flights after their merger negotiations fell apart two years ago.
United, US Airways
United, based in Chicago, and US Airways began discussions in mid-February, people familiar with the matter have said. The combination probably would be an all-stock transaction, with the smaller US Airways as the acquirer, the people said. Spokesmen for the companies declined to comment.
A business-travel revival after the recession and greater access to capital increase the likelihood of consolidation now, Jamie Baker, a JPMorgan Chase & Co. analyst in New York, told clients in a note. British Airways Plc, Europe's No. 3 carrier, and Spain's Iberia Lineas Aereas de Espana SA said today they signed a definitive agreement on a $7.5 billion merger.
"The true value of consolidation, in our view, comes in the savings associated with less flying," Baker wrote.
Continental rose 73 cents, or 3.6 percent, to $21.23 at 4:15 p.m. in New York Stock Exchange composite trading, while Tempe, Arizona-based US Airways jumped 73 cents, or 11 percent, to $7.55. UAL climbed $1.28, or 6.8 percent, to $20.23 in New York in Nasdaq Stock Market composite trading.
Continental would fall further behind the three largest U.S. carriers, led by Delta Air Lines Inc., should a United-US Airways merger succeed. The combined airline would leapfrog the current No. 2, AMR Corp.'s American Airlines. US Airways is the sixth-biggest U.S. airline.
Size Advantage
Broader route networks help airlines by allowing them to funnel in more passengers. Continental derived 55 percent of its $12.6 billion in 2009 revenue from domestic flights and operates U.S. hubs in Houston, Cleveland and Newark, New Jersey.
Pilots at Continental and United have remained in contact since the 2008 merger discussions. Continental's pilots would support a combination with United if it included an equitable merging of seniority lists and created a company with "long- term viability and strength," said Jay Pierce, president of Continental's Air Line Pilots Association.
United pilots won't oppose any merger that benefits their careers and long-term future, Wendy Morse, chairman of the Air Line Pilots Association at United, said today.
"A merger with US Airways does not appear to come close to meeting that standard," Morse said in a statement that didn't mention Continental. "We vehemently oppose any merger that would not lead to a strong and viable United Airlines."