Continental Airlines says it will not pursue a merger

HOUSTON -- Continental Airlines Inc. said Sunday it would not pursue a combination with another carrier right away, a surprising move after weeks of growing speculation that it would join with United Airlines to create the world's biggest airline.

Continental (CAL, Fortune 500) Chairman and Chief Executive Lawrence Kellner said in a message to employees that the Houston-based airline was better off alone than merging.

Although it reported an $80 million loss in the first quarter, Continental is widely viewed as the second-strongest U.S. carrier in financial terms, behind only Southwest Airlines (LUV, Fortune 500), which has indicated it isn't interested in a merger.

More possibilities
While Kellner ruled out a merger for the time being, Continental appeared to leave the door open to an alliance with another carrier. The airline has reportedly discussed such an arrangement with AMR Corp. (AMR, Fortune 500), the parent of American Airlines, in which the companies would work together in many ways but not merge their operations.

Airlines have been considering consolidation as a way to cut costs as they face the strain of record fuel prices. Delta Air Lines (DAL, Fortune 500) announced earlier this month it has agreed to buy Northwest Airlines (NWA, Fortune 500) in a stock-swap deal that would create the world's largest carrier. A Continental-United combination would have trumped Delta-Northwest in size.

A United (UAL) spokesman did not immediately return a call for comment.


Continental expects to spend $1.2 billion more on fuel this year than it did in 2007. To cope with the added cost, the airline plans to take some older, less-fuel-efficient planes out of service over the next 12 months and to reduce its U.S. capacity by 5 percent beginning this fall.

A spokesman for Continental's union pilots said pilots were pleased that the company won't pursue a merger, given the weak condition of other carriers. United Airlines parent UAL Corp., for example, lost $537 million in the first quarter and announced it would cut 1,100 jobs.

Kellner had long said Continental would prefer to remain independent - if the landscape of the airline industry stayed the same. But earlier this month Kellner said that the Delta deal had changed the landscape.

Continental and its regional subsidiaries operate about 3,100 daily flights. Continental has major hubs in Newark, N.J., Houston and Cleveland.