Nov. 20, 2006, 11:12PM
Continental keeps wary eye on merger bids
US Airways' offer to take over Delta may ignite industry shake-up
By BILL HENSEL JR.
Copyright 2006 Houston Chronicle
The next few weeks could be critical ones for Continental Airlines and the U.S. airline industry.
Merger speculation is in the air in the wake of US Airways' hostile bid last week to take over bankrupt Delta Air Lines. Experts said that move could trigger more mergers.
Executives at Continental are watching intently to see how other carriers play their hands.
They are likely to keep their cards close to the vest until mid-December, when Delta said it will file its plan to emerge from bankruptcy.
Larry Kellner, chairman and chief executive of Continental, said over the weekend that Continental also wants to remain independent — but he left the door open to a deal with another carrier.
"If the landscape of the U.S. airline industry does indeed change, we will do what we need to do to act in the best interest of you, our customers, our shareholders and the communities we serve," Kellner said in a taped message to employees late Friday.
Executives of the carrier won't share specifics about what steps they may be taking to prepare if other carriers combine.
But Kellner said in his message that a US Airways-Delta matchup would create the world's biggest airline, which could be bad for Continental. It already is facing a competitor on that scale in Fort Worth-based American Airlines.
However, a union between United Airlines and Delta would be that much worse for the Houston airline because Continental would be facing an even larger competitor, making it tougher for Continental to win and keep corporate travel customers.
And this could leave Continental out in the cold. If United went after Delta, airline consultant Mike Boyd, of Boyd Group, said US Airways could turn to Northwest Airlines.
If that happened, Continental could be left as a stand-alone airline dwarfed by giants.
Former Continental Chief Gordon Bethune on Monday likened it to musical chairs.
"When the music stops, you need a place to sit," Bethune said. "Larry needs to think about watching the combinations because it's got to be something you can participate in."
Facing several huge carriers could be detrimental, he noted. Airlines make much of their money from business travelers, and corporate clients like airlines with the largest route systems.
Delta fighting takeover
Currently among U.S.-based airlines, American dominates market share when measured by the number of miles flown by passengers, with 17.4 percent market share. It is followed by United with 14.5 percent, and Delta with 12.2 percent. In comparison Continental has a 9.4 percent share.
Delta is fighting the bid by US Airways, which had pitched its plan directly to Delta's creditors. The Atlanta carrier is now working on putting together a better deal.
Delta said in an advertisement published Monday it is focused on emerging from bankruptcy next year as a stand-alone, independent company.
Merrill Lynch analyst Michael Linenberg gives the US Airways and Delta merger more than a 50 percent shot of happening.
Bethune said Monday he thinks that a merger between Continental and United could work.
"What needs to happen is Continental needs to acquire United in some fashion and run it out of Houston," Bethune said. "The last thing Continental needs is to become United and run it out of Chicago. Continental just has way too much on the ball to sit in the back seat."
Boyd said that while a Continental-United pairing could be a strong fit, he doesn't know if regulators would approve a deal because creating an airline that large could mean less competition, which could lead to objections under antitrust laws.
Boyd also thinks a merger between US Airways and Delta would be a mess. In addition, he questions the premise that mergers are needed because there are too many planes competing for travelers. He noted flights are flying more than 80 percent full and the airlines are returning to profitability.
Any takeover of Continental would be complicated by its relationship with Northwest Airlines, which has a so-called "golden share" of Continental. That essentially gives it power to nix potential deals to acquire the Houston-based carrier.
Feds may not approve
Bethune was leading Continental when the agreement with Northwest was reached.
"When our board agreed, it just says we can't be bought by another airline," said Bethune, who is now chairman of the board of Aloha Airlines. "But that didn't preclude Continental from buying someone else."
Bethune expects mergers to occur, however.
"This consolidation is going to happen by design or by default," the former chairman and chief executive said. "It is stupid to have this many air carriers. You don't have stability in employment, you don't have stability in pensions."
Calyon Securities analyst Ray Neidl said in a report that he believes the industry is fragmented and "primed for consolidation." But, he added, "we are not sure if the regulators and politicians are ready for major industry consolidation."
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Continental keeps wary eye on merger bids
US Airways' offer to take over Delta may ignite industry shake-up
By BILL HENSEL JR.
Copyright 2006 Houston Chronicle
The next few weeks could be critical ones for Continental Airlines and the U.S. airline industry.
Merger speculation is in the air in the wake of US Airways' hostile bid last week to take over bankrupt Delta Air Lines. Experts said that move could trigger more mergers.
Executives at Continental are watching intently to see how other carriers play their hands.
They are likely to keep their cards close to the vest until mid-December, when Delta said it will file its plan to emerge from bankruptcy.
Larry Kellner, chairman and chief executive of Continental, said over the weekend that Continental also wants to remain independent — but he left the door open to a deal with another carrier.
"If the landscape of the U.S. airline industry does indeed change, we will do what we need to do to act in the best interest of you, our customers, our shareholders and the communities we serve," Kellner said in a taped message to employees late Friday.
Executives of the carrier won't share specifics about what steps they may be taking to prepare if other carriers combine.
But Kellner said in his message that a US Airways-Delta matchup would create the world's biggest airline, which could be bad for Continental. It already is facing a competitor on that scale in Fort Worth-based American Airlines.
However, a union between United Airlines and Delta would be that much worse for the Houston airline because Continental would be facing an even larger competitor, making it tougher for Continental to win and keep corporate travel customers.
And this could leave Continental out in the cold. If United went after Delta, airline consultant Mike Boyd, of Boyd Group, said US Airways could turn to Northwest Airlines.
If that happened, Continental could be left as a stand-alone airline dwarfed by giants.
Former Continental Chief Gordon Bethune on Monday likened it to musical chairs.
"When the music stops, you need a place to sit," Bethune said. "Larry needs to think about watching the combinations because it's got to be something you can participate in."
Facing several huge carriers could be detrimental, he noted. Airlines make much of their money from business travelers, and corporate clients like airlines with the largest route systems.
Delta fighting takeover
Currently among U.S.-based airlines, American dominates market share when measured by the number of miles flown by passengers, with 17.4 percent market share. It is followed by United with 14.5 percent, and Delta with 12.2 percent. In comparison Continental has a 9.4 percent share.
Delta is fighting the bid by US Airways, which had pitched its plan directly to Delta's creditors. The Atlanta carrier is now working on putting together a better deal.
Delta said in an advertisement published Monday it is focused on emerging from bankruptcy next year as a stand-alone, independent company.
Merrill Lynch analyst Michael Linenberg gives the US Airways and Delta merger more than a 50 percent shot of happening.
Bethune said Monday he thinks that a merger between Continental and United could work.
"What needs to happen is Continental needs to acquire United in some fashion and run it out of Houston," Bethune said. "The last thing Continental needs is to become United and run it out of Chicago. Continental just has way too much on the ball to sit in the back seat."
Boyd said that while a Continental-United pairing could be a strong fit, he doesn't know if regulators would approve a deal because creating an airline that large could mean less competition, which could lead to objections under antitrust laws.
Boyd also thinks a merger between US Airways and Delta would be a mess. In addition, he questions the premise that mergers are needed because there are too many planes competing for travelers. He noted flights are flying more than 80 percent full and the airlines are returning to profitability.
Any takeover of Continental would be complicated by its relationship with Northwest Airlines, which has a so-called "golden share" of Continental. That essentially gives it power to nix potential deals to acquire the Houston-based carrier.
Feds may not approve
Bethune was leading Continental when the agreement with Northwest was reached.
"When our board agreed, it just says we can't be bought by another airline," said Bethune, who is now chairman of the board of Aloha Airlines. "But that didn't preclude Continental from buying someone else."
Bethune expects mergers to occur, however.
"This consolidation is going to happen by design or by default," the former chairman and chief executive said. "It is stupid to have this many air carriers. You don't have stability in employment, you don't have stability in pensions."
Calyon Securities analyst Ray Neidl said in a report that he believes the industry is fragmented and "primed for consolidation." But, he added, "we are not sure if the regulators and politicians are ready for major industry consolidation."
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