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The Star Alliance Gets Even Bigger

Posted by: Justin Bachman on June 19

Continental Airlines’ departure from the SkyTeam alliance with Delta and Northwest was just a matter of time. The real question was where Continental would land with its future partnership, and now we know: Star Alliance, the largest. Among its members are some of the world’s largest and most admired airlines, including Singapore, ANA, Lufthansa, and Thai. In an e-mail, a Delta spokeswoman said Continental “has been a good partner” but that Delta sees a bright future with Northwest and Air France KLM.

This new partnership, between the second and fourth-largest U.S. airlines, effectively means the full-court press for industry consolidation is over. For now. Continental and United will seek antitrust immunity to coordinate schedules and pricing, the way Continental, Delta, Northwest and Air France KLM did it over the Atlantic, and will sell seats on each other’s flights. But both will remain independent, as will AMR’s American Airlines.

The Delta-Northwest deal will likely happen, and someone may even seek to buy the hapless US Airways on the cheap, but don’t look for a major shrinkage in the number of U.S. network carriers. The Big Six will become the Big Five (or Four). At a time when oil prices are ravaging the industry, the expense of managing one’s own financial dysfunction is slightly less onerous than the expense of trying to manage the dysfunction while integrating your problems with someone else’s.

“As we experience some of the most challenging conditions airlines have ever faced, we look forward to the benefits of a new relationship with United and the other Star Alliance members,” Continental CEO Larry Kellner said in a joint release. For Continental, to employ the cliché, the Star Alliance represents a “win-win” in terms of traffic and revenue opportunities.

Also, one can reasonably expect this deal, when it takes effect next year, to lead to some cost savings. Here’s the press release verbiage that really stands out:

“Teams from the two organizations worked intensively over the last several weeks exploring creative solutions for how the two companies could achieve efficiencies and synergies that expand beyond the well-established benefits of codesharing. Their work focused on plans for significant cooperation on frequent flier programs, lounges, facility utilization, information technology and procurement. This work was assisted by the efficiency opportunities identified and relationships developed during the parties’ earlier merger discussions.”

Between all those lines, I keep seeing the word ‘redundancies,’ and fully expect that United is hoping Continental’s management helps it find ways to save money. They both do all those things an airline must do, such as IT, manage airport fees, negotiate gate leases, HR, et al., but United somehow consistently finds a way to spend vastly more money in the process than others do. It is also interesting to note that they are slyly confirming that they talked M&A earlier this year. The airlines’ respective previous releases on the matter never explicitly said as much.

Continental’s decision makes sense on several levels, most notably for network reach. It immediately strengthens Star Alliance’s most glaring weakness, the Latin American market. From its Houston hub, Continental flies to every city of importance in Mexico, and has service to Colombia, Costa Rica, El Salvador, Honduras, Nicaragua, Panama, Venezuela and most of the Caribbean. United flies to Brazil and Buenos Aires, but has never had a Latin strategy that works. It also insulates Continental from being tainted by the toxic mess of employee relations at United and US Airways, another domestic Star Alliance member.

Reader Comments

jamie

June 20, 2008 12:11 PM

This is the same United Airlines that walked away from Chile,El Salvador, Honduras, Nicaragua, Panama, Venezuela. This management is a mess. They should be fired.

This is the same management that spends $15,000 a month in Detroit to deliver bags that could not be carried on regional jets. The 737's and A320's were replaced by RJ's. The bigger jets carry bags and freight. It sounds like a real team of idiots.

ravel

June 20, 2008 12:16 PM

United is a very BAD airline if not one of the worst ones. It should leave Star Alliance and go down the drain!!!

shah quaiyoom

June 20, 2008 12:37 PM

Congratulations. It is indeed a good decision as Continental will be with Star Alliance, which interests many of Continental's customers.

andy

June 20, 2008 12:52 PM

You hit it right on. United needs to let Continental's management team run things then maybe this whole mess could work. Keep United's ideas out of the picture.

Tom

June 20, 2008 12:58 PM

CO is the last legacy airline brand in the states still associated with a modicum of quality. One hopes that CO will not devolve to UA's operational standards in this alliance.

On the other hand, should United Airlines fail and liquidate, this positions Continental to be the primary US-based member of the world's leading airline alliance.

James Underwood

June 20, 2008 12:59 PM

The Star Alliance should stop all flights to countries that send and encourage illegal aliens to the United States.

Connolly

June 20, 2008 01:47 PM

My condolences to the Star Alliance and all of her customers. Continental Airlines’ has no problem bluntly lying, cheating and stealing from its passengers. What they bring to the table is the knowledge (from its past flyers) that the neighborhood has gone substantially downhill.

Jesse

June 20, 2008 01:49 PM

James Underwood,

This is counterintuitive position, much like the position of the US government on illegal aliens from Mexico. Stopping flights to these countries will discourage business, reduce economic development and therefore keep the population living in poverty. Escaping poverty or political prosecution is the reason people leave their country and enter the US illegally. Increasing economic development in countries such as Mexico is not a quick fix to the influx of illegal aliens, but it’s the only lasting one. This country needs to quit being so myopic.

Joel

June 20, 2008 02:06 PM

This deal with United I think started when Gorden B., the ex-CEO of Continental, started to work for United.

Morbo

June 20, 2008 02:06 PM

I agree with James Underwood.

It's about time we got serious about all the illegal Canadians coming across the Seattle/Detroit/Buffalo borders and stealing American jobs.

Jeff

June 20, 2008 03:09 PM

Mordo,

I mean moron! Even if there were jobs available in your crumbling economy, I can assure you that Canadians aren’t going to be queuing up to steal them. People like you are an indication of a scary problem in America: ignorance.

Robert

June 21, 2008 09:06 AM

You are worried about a couple of hundred Canadians (which by the way I find courteous and intelligent) coming across the border to work? There are more Americans in Canada at the moment.

Get a grip, United is a horrible Airline.

ezduzit

June 21, 2008 09:29 AM

a major step down substituting quantity for quality. united is the worst airline next to american and nothing good can be gained from this ill conceived plan.

DORMAN

June 21, 2008 12:21 PM

UNITED IS THE WORST! AS A PLATINUM LEVEL FLYER ON CONTINENTAL I AM REALLY WORRIED!

UNITED NEEDS TO FILE FOR BANKRUPTCY AND BE DONE.

ENOUGH SAID.

Global Gypsy

June 21, 2008 01:17 PM

Jeff, I think Mordo was being sarcastic. I'm guesssing you're Canadian. You've got us beat at so many things. Why don't ya'll get over the insecurity and ligthen up?

bob d.

June 22, 2008 08:13 AM

agree with United being the worst airline today, Ohare can not handle the flights and is a terrible connection in the winter months. Both united and american are disasters

JetSetter

July 8, 2008 12:10 PM

I think United should start to look at the other airlines in the airlines like Singapore, Lufthansa and ANA, and learn how they provide a quality service. They should just scale back on the number of flights they do and focus on key routes providing a high quality and consistent service. THey need to do this for both international and domestic routes.

http://jetandset.blogspot.com/

Paul Stern

January 22, 2009 02:39 PM

We flew United from Philadelphia to Singapore and returned from Hong Kong only weeks ago. We generally fly US Airways (dominant in Philadelphia) and took United because of the Star Alliance. The "food" was vile and the planes cramped. United has the unique ability to make US Airways an almost pleasant experience.

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BusinessWeek editors Dean Foust and Justin Bachman provide road warriors with the latest news, trends in business travel, which as most readers are aware, has all the romance of taking a school bus cross country. Come here to pick up travel news and tips or just commiserate about your latest business trip gone awry.

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