As Continental (CAL) Walks From United (UAUA) Link-Up, Airline Mergers Look Less Attractive

The board and management of Continental Airlines (CAL) have decided that staying single is the best way of life. After long merger talks with United (UAUA), Continental has elected to go it alone.

Continental may still enter a “code sharing” alliance with one or more airlines so that customers can have common ticking across more than one carrier.

The decision is based on the premise that airline mergers created nightmarish customer service problems which drive fliers to the competition. It is a sound position and calls into question the wisdom of Delta’s (DAL) merger with Northwest (NWA).

While industry marriages may allow for the cutting of some routes and personnel, they can lead to labor relations headaches including strikes by employees who are trying to keep their jobs. The hook-ups also do nothing to solve the more pressing problem at all airlines–rising fuel costs.

Whether solo or linked, several of the large US carriers could go into Chapter 11 this year. A combination of $120 crude and a recession which is almost certain to curtail air travel put the airlines under pressure which their managements cannot relieve.

The airline industry is about to undergo another profound restructuring, whether it wants to or not.

Douglas A. McIntyre