Continental Airlines and United Airlines gave strong signals Tuesday that they would consider a merger, either together or with someone...
Continental Airlines and United Airlines gave strong signals Tuesday that they would consider a merger, either together or with someone else, raising the prospects for another big airline deal.
A combination of the two carriers would create an even larger airline behemoth than Monday’s proposed merger of Delta Air Lines and Northwest Airlines and drastically could alter the competitive landscape.
In the end, the industry shakeout could mean substantially higher air fares leading to more people staying home, some aviation experts believe.
With industry consolidation and demise of three discount carriers, “You have a perfect storm of badness for the consumer,” said Roland Rust, chairman of the marketing department at University of Maryland’s business school. “It’s just a real bad situation, and it’s likely to get dramatically worse.”
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The possibility of a second major airline deal came as Congress raised concerns that higher fares and fewer flights might be the result of a merger of Delta and Northwest. The deal would create the world’s largest airline, surpassing American Airlines.
While some lawmakers might scrutinize the merger, financial analysts said, Congress can do little to block the deal. They predicted the combination will win approval from the Bush administration by year-end. The merger needs approval of the Justice Department, which could block the deal if it finds that the combination was anti-competitive.
“It’s not likely to be a problem,” said Mark Ostrau, co-chairman of the antitrust and unfair-competition group for Silicon Valley, Calif., law firm Fenwick & West. He said the Justice Department might find a few small airports where the new airline might dominate but that “they are not likely to be enough to raise competitive concerns.”
As Congress, labor unions and consumer groups weighed the impact of the Delta-Northwest pact on passengers and workers, Wall Street swelled with speculation about who would be next.
With merger talk in the air, Continental issued an internal memo to its employees saying it would review “strategic alternatives” to “make sure we remain a strong long-term competitor.”
The Delta-Northwest merger “will change the competitive landscape for Continental and the entire airline industry,” read the memo, which was written by Larry Kellner, chief executive, and Jeff Smisek, president. “As we’ve said repeatedly for more than a year and a half, our preference has been to remain independent as long as the competitive landscape remained the same. However, the landscape is changing.”
For its part, United’s chief executive, Glenn Tilton, said in his employee memo that the airline would “participate in a consolidation when and if it is the right choice.”
“The industry has changed — both globally and domestically — and the old paradigms no longer apply; the current fuel and economic environment are only accelerating the need for a different approach,” he said.
A combination of United, the nation’s second largest airline, with No. 4 Continental would create the world’s largest airline — ahead of the proposed merger of No. 3 Delta and No. 5 Northwest.
Combined, United and Continental would have a fleet of nearly 930 planes flying to more than 470 destinations. The proposed Delta-Northwest airline would have a fleet of 800 planes and serve 380 destinations.
American Airlines, the largest carrier currently, could be left without a partner because it would likely raise substantial anti-competitive concerns if it were to hook up with any of the other five major carriers.
Some analysts said American might look for a large regional airline such as Alaska Airlines as a possible partner, or try to play the spoiler by making a bid for Delta or Northwest.
Los Angeles Times reporter Richard Simon in Washington, D.C., contributed to this article.