Most pundits (self included) had been suggesting that following the expected DL/NW merger that United and Continental would be the next pair to join up. United is struggling mightily, and Continental is well run but also small, making it difficult for them to compete either domestically or globally on total route coverage or frequencies of flights. Of course, such mergers are almost always bad for customers, and most folks are looking at the mergers with apprehension more than excitement. So yesterday’s announcement from Continental’s management to their employees was somewhat surprising (I bolded some of the interesting points):
We want you to know that our Board of Directors met today and has unanimously supported management’s recommendation that, in the current industry environment, the best course for Continental is to not merge with another airline at this time.
We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths — which we believe would be placed at risk in a merger with another carrier in today’s environment. We will, however, continue to review potential alliances and our membership in SkyTeam. We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term.
While some would prefer to see Continental pursue a merger, we strongly believe we have made the right decision – one that is in the best interests of our stockholders, co-workers, customers and the communities we serve.
Not really included in the letter, but implied and suggested throughout the tone is that merging with United would be bad for the morale and probably bad for the balance sheet as well. Considering United’s significant losses last quarter, the liability of trying to take on that additional debt is significant, so not all that surprising that Continental is happy to stay small and flexible given the high costs of doing business right now.
Also interesting is the suggestion that Continental is considering jumping ship from SkyTeam. They joined the alliance based mostly on their tie-in with Northwest, which joined based on their link to KLM, which in turn is tied to Air France, a founding member of the alliance. Now that the CO/NW link is somewhat weakened, the need for Continental to stay in SkyTeam is somewhat diminished. Combine that with the super anti-trust exemption that AF/NW/DL/KL recently won and the fact that Continental is talking with American Airlines about alliance options doesn’t come as much of a surprise at all.
So we’ll have to keep watching, but it looks like the merger mania may have slowed down a bit.
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