Source: Associated Press
Author: Dave Carpenter

CHICAGO (AP) — United Airlines and Continental Airlines Inc. are talking about forming an alliance to gain some benefits of working together without going through a merger, which Continental rejected last month, a person close to the talks said Wednesday.

United is still pushing ahead with negotiations aimed at a combination with US Airways Group Inc. but would not pursue both deals, said the person, who was not authorized to speak about the matter and requested anonymity.

United, the nation's second-largest carrier, is expected to take up the matter Thursday at a meeting of parent UAL Corp.'s board of directors.

No vote is expected, and the person close to the talks said a decision is not imminent on which of three options currently under consolidation United will pursue: consolidating with US Airways, forming an alliance with Continental, or remaining a stand-alone carrier.

Chicago-based United had been close to combining forces with Continental until the Houston-based carrier said April 27 that it would not seek a merger. But Continental left the door open to an alliance with another carrier.

"As we've said over the last few weeks, we are examining our alliance relationships as we think it's important that we be a major player in one of the three major global airlines alliances," Continental spokeswoman Julie King said.

United spokeswoman Jean Medina declined comment.

An alliance, in which the companies would work together in many ways but not merge their operations, would provide a way for them to raise more revenue without the integration problems that come with formal consolidation. It could set pricing and schedules and have U.S. antitrust immunity.

Mergers also can be highly disruptive, costly and risky for airlines. US Airways is still operating basically as two airlines more than two years after combining with America West because of disagreements between unions.

Continental is also still in discussions about an alliance with AMR Corp.'s American Airlines and British Airways, said an official with knowledge of those talks. That person also was not authorized to discuss the matter and requested anonymity.

The official said it would not be unusual for Continental to be considering alternatives, but that the British Airways-Continental-American talks are progressing and don't appear in jeopardy. British Airways publicly disclosed the talks April 30.

Bob Mann, an independent airline consultant based in Port Washington, N.Y., said he doesn't think an alliance between United and Continental is likely because it wouldn't go far enough to solve the carriers' cost and capacity issues.

"The United guys are very much heading in the direction of something that will really allow them to downsize the airline," he said. "We're talking about large capacity cuts. ... The alliance doesn't get to the point where you can really do the capacity-cutting."

The airlines are under more competitive pressure in the wake of Delta Air Lines Inc.'s pending deal to acquire Northwest Airlines Corp.

Combining United and US Airways would create a carrier rivaling the Delta-Northwest tandem for the title of world's largest airline.