Continental-United merger rumors reignite after DOJ denies joint request for ATI on Int'l Flights

Discussions about a potential Continental-United tie-up
have resumed following the Department of Justice's 
denial of the carriers' joint request for Antitrust Immunity
on all international routes. (Photo credit: AP)

Continuing the airline merger mania trend that began with last week's comments by US Airways CEO Doug Parker, the Department of Justice today released its ruling on Continental and United's petition for complete Antitrust Immunity on all international routes the two carrier serve, which would allow the two carriers to more closely coordinate sales, marketing and pricing. The DOJ had tentatively approved ATI on several overseas flights between Continental and Star Alliance carriers on April 7, preceding Continental's entry into the alliance this October. Today's ruling, which denied the joint application on the basis of its limitation and, in some cases, elimination of competition on international routes, can be seen as a blow to Continental and United's increasing closeness, which had precipated rumors of a merger since Delta and Northwest tied up last year. From the DOJ brief:

The immunity requested by the Joint Applicants is unprecedented in scope and breadth, sanctioning collusion by United and Continental on all international service, eliminating or significantly reducing competition between certain Star alliance members on routes where they provide the only - or almost all of - the competitive alternatives, and removing previously imposed protections designed to preserve competition on overlap routes.

The report goes on to assert that average price increases as high as 15% could occur on routes where cometition would decrease from two carrier to one, citing markets such as China, into which a carrier's entry is limited by annual application and strict government scrutiny, as prime examples. It goes on to assert that "carriers in non-immunized alliances offer lower prices than those in immunized ones".

A Continental-United marriage has been long speculated in the industry, pending observations on Delta as it continues its absorbtion of Northwest. A combined Continental-United entity would offer to the world's largest airline a fierce competitor, bolstered by United's strength in Asia and the South Pacific and Continental's extensive European and Latin American networks. Combined hubs would provide the carrier large presences in nearly every geographical area of the United States, adding to United's dominance in the Upper Midwest, Rocky Mountain Region, Mid-Atlantic and West Coast Continental's fortress hubs in international energy capital Houston, and Newark, one of the airports serving New York City. A union could offer increased financial stability for a combined carrier. While Continental has been the strongest performing legacy carrier this decade, having re-organized into a leaner, more efficient airline by filing for strategic bankruptcy three times in the late 80's and early 90's when many of its now-flailing peers were profitable, United entered bankruptcy protection in December 2002 due to financial reverberations following the September 11 incident, as well as its own "Summer of Hell" in 2000. United exited bankruptcy protection in February 2006, though its financial performance since then has been less than ideal.

Both Continental and United currently maintain relatively small operations at Austin-Bergstrom, offering service to Continental's hubs at Houston and Newark and United's at Denver, Chicago-O'Hare and Washington Dulles. If the carriers combined, it is likely that service would remain to all of these cities, though frequencies could be reduced to consolidate the new company.

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