Continental Chief Says a Merger Isn't Best Route

Continental Airlines prefers to remain independent if the airline industry stays as it is, Chairman and Chief Executive Larry Kellner reiterated Wednesday.

"My general belief is that if the industry stays as it is, we don't see huge benefits in consolidation for us," Kellner said in remarks to an aviation and transportation conference hosted by JP Morgan in New York. "We are very well-positioned competitively."

Continental has maintained a consistent position about mergers for months, but comments about possible consolidation by airline executives are closely scrutinized for any changes in wording.

That's because a spate of takeover speculation erupted late last year, gaining steam after US Airways launched a hostile bid for Delta Air Lines.

It later came out that Continental and United Airlines had talked about a potential merger even before that happened.

US Airways later withdrew its proposal Jan. 31 after Delta's creditors committee rejected the smaller carrier's bid. That stemmed some of the merger talk, at least temporarily.

Kellner on Wednesday also said the so-called "open skies" agreement between the U.S. and European Union, which could be approved by the EU Transport Council this week, would benefit Continental.

That agreement, which allows European carriers greater access to the U.S. and vice versa, helps Continental to get access to Heathrow Airport in London, he said.

Merrill Lynch analyst Michael Linenberg said in a report that he expects that initial phase to be approved.

But even that could be in jeopardy if the U.S. and EU are unable to reach an accord by mid-2010 on the second phase of negotiations, which likely will address foreign ownership restrictions.

Merrill Lynch said it views approval of the agreement as a catalyst for more far-reaching relationships between carriers on both sides of the Atlantic, which could trigger higher airline stock prices.

"We think American, Continental and United are likely to be the biggest beneficiaries," Linenberg said.

If the EU approves the first phase, the next step would be a formal signing at a summit in Washington on April 30, the analyst added.

The Business Travel Coalition has long backed the agreement, noted Kevin Mitchell, the group's chairman.

"This breakthrough development will usher in a new era of lower costs for airlines, greater access to strategically important aviation markets and lower airfares for corporations that fund business travel activities," Mitchell said in a statement.

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