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United-Continental Merger?

Merger or not, all eyes are on United-Continental  Dec 28, 2008

Whether its because of persistent merger speculation or because it could set a new model for airline alliances, the looming partnership between United and Continental will be closely watched throughout the industry, the Chicago Tribune reports. The airlines are going beyond what traditional code-share partnerships have done in the past, the paper writes, adding they are "seeking greater breadth and depth than that, taking their code-share arrangement global while working together to cut costs and share ground operations in ways that don't run afoul of antitrust restrictions."

The carriers plan a very close link in their operations. That will allow connecting customers to transfer from one airline to the other and putting in place and the airlines also plan reciprocal frequent-flier benefits. They also are considering pooling assets, such as possibly jointly purchasing fuel or, perhaps, jointly running certain operations at some airports. "What we're doing with Continental is new and going to a place we haven't gone before with any of our partners," Michael Whitaker, United's senior vice president for alliances, international and regulatory affairs, tells the Tribune.

The companies also have asked for broad, worldwide anti-trust immunity that would allow them to coordinate schedules ... not only with each other, but also with other Star Alliance members –- such as Lufthansa or Air Canada. Still, the Tribune notes "the end result, linking operations … , won't be evident until the fourth quarter of 2009. That's when Continental will formally drop out of SkyTeam, its current marketing alliance, to join United and its Star Alliance partners." That carriers' pact also raises the question of just how much scrutiny federal regulators will give this unusually close alliance.

The Tribune also notes the United-Continental pact currently being developed "grew out of failed merger talks." Could the airlines reconsider that option? Some analysts note that many of the steps that carriers are taking now would be done anyway if they merger. Aviation consultant Robert Mann tells the Tribune: "If the carriers get comfortable over time, who knows what it might lead to? It's kind of like the dating process." Still, others point to other factors –- such as difficult financing in the current economy –- as obstacles to any renewed merger talk.

However, if the airlines stick to their current alliance plans, the Tribune says "other Star members are closely watching the work at United and Continental, possibly to use it as a template for closer partnerships. … If Star partners can closely link their technology and operations to seamlessly move passengers among carriers around the world, a tall order, alliances may replace megamergers, said Vaughn Cordle, aviation analyst and a former airline pilot." He tells the Tribune: "At that point, it becomes irrelevant whose logo is on the plane."

Merger or not, all eyes are on United-Continental
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