Continental Airlines tells employees it won't seek merger

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AP Business Writer

DALLAS (AP) -- 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 Chairman and Chief Executive Lawrence Kellner said in a message to employees that the Houston-based airline was better off alone than merging.

"We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths -- which we believe would be placed at risk in a merger with another carrier in today's environment," Kellner told employees.

Although it reported a loss in the first quarter, Continental is widely viewed as the second-strongest U.S. carrier in financial terms, behind only Southwest Airlines Co., which has indicated it isn't interested in a merger.

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., 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 Inc. announced earlier this month it has agreed to buy Northwest Airlines Corp. 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 spokesman did not immediately return a call for comment.

"Every U.S. carrier, including Continental, is under enormous pressure from record high fuel prices, a slowing U.S. economy and a weak dollar," Kellner told employees. "In today's harsh environment, we must continue to adjust our business model to ensure we successfully navigate through these difficult times, so that in the future we can once again grow and prosper."

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