Continental tries to stay in the game with partner talks
Just a few short weeks ago Continental Airlines called off merger talks with United Airlines. However, with combo discussions between United and US Airways, Delta Air Lines and Northwest Airlines, as well as European carriers ongoing, Continental wants to ensure it stays in the game.
Both The Houston Chronicle and Reuters are reporting that Continental Airlines wants to form an alliance with United Airlines. The carrier is also in talks with American and British Airways. Additionally, Continental is leaving the door open to forming an alliance outside of SkyTeam.
What’s the difference between an alliance and a merger?
An alliance allows airlines to extend its reaches but avoid some of the labor and regulatory issues associated with mergers. It lets them to share revenues and streamline costs. In other words, they don’t have to deal with headaches such as integration of reservation systems, aircrafts, and labor issues.
Additionally, a merger requires the approval of the Justice Department. An alliance requires approval only by the Department of Transportation. The agency would decide whether to give proposed alliance partners antitrust immunity, which allows them to align service and tweak capacity in concert.
Continental is part of SkyTeam and United is part of the Star Alliance.
Why talk about an alliance now, after Continental spurned United? If the merger between Delta and Northwest is approved, it could possibly weaken Continental’s position within SkyTeam. Alliance partners can help extend Continental’s international reach without having to deal with merger issues.
Why not a merger? One reason Continental said it shunned a merger is because it has significant cultural, operational and financial strengths compared to the rest of the industry, according to reports.
Analysts say that Continental is a desirable alliance partner because of its routes out of Newark and Houston. Houston is especially a strong asset because it acts as a gateway to Latin America. Additionally, Continental can offer seamless ticketing to places it doesn’t serve.
Not everyone though is keen about an alliance. The Chronicle previously reported that Virgin Atlantic Chairman Richard Branson feels that the alliance between American and British Airways is still anti-competitive. “And now they have the cheek of trying to add Continental,” he added. “This triple whammy would reduce effective competition across the Atlantic.”
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