United in alliance talks with Continental

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United Airlines has begun talks with Continental Airlines Inc for a possible alliance even as its merger talks with US Airways continue to advance, sources briefed on the matter said.

United, a unit of UAL Corp, will make a decision on whether to merge with US Airways soon, two people said, adding that a deal with US Airways Group Inc is likely, but not imminent. The sources declined to be identified because of the confidential nature of the talks.

Although United's board of directors had a meeting on Thursday, no decision is expected, the people said.

Continental Airlines, which called off merger talks with United in late April, is also in advanced alliance talks with American Airlines AMR Corp and British Airways Plc, sources have previously told Reuters.

The wave of talks come after Delta Air Lines Inc and Northwest Airlines Corp said in April they planned to merge and become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel.

After racking up $35 billion in losses and finally emerging from a 5-year slump in 2006, US airlines are hoping mergers could give them greater market power to reduce flights and raise fares.

The airlines also face a renewed sense of urgency to cut costs as jet fuel prices have more than doubled since the start of last year.

Continental, American and British are looking at forming alliances and then seeking antitrust immunity. United would also seek immunity if it were to form an alliance with Continental, one of the sources said.

Airline alliances allow partners to streamline costs while sharing revenues. Without antitrust immunity, the data and revenue shared on the routes would normally be considered collusive.

Earlier this month, the US Department of Transportation granted tentative antitrust immunity to the SkyTeam alliance involving Delta, Northwest, Air France-KLM and Alitalia.

Continental, which has a marketing alliance with SkyTeam but was not part of the group that received antitrust immunity, has said it would review its participation in that alliance.

UAL-US Merger

Analysts have said a United-US Airways merger would not be very complex as wages at the two carriers are closely aligned and their fleets mesh well. The two are also part of the same global marketing alliance.

UAL's market value stands at $1.8 billion, while US Airways is valued at $657 million, one of the lowest among major carriers.

A United-US Airways deal foundered in 2001 on antitrust concerns. But consolidation proponents say the industry and the two carriers have changed dramatically.