Continental Airlines today said it plans to leave the SkyTeam airline alliance to form a transatlantic joint venture with United Airlines and two other Star Alliance carriers, while embarking on broad cooperation with United that includes a global codeshare agreement, frequent flyer reciprocity and joint "lounges, facility utilization, information technology and procurement" initiatives.
Through the proposed transatlantic joint venture among Continental, United, Lufthansa and Air Canada, the carriers plan to "pool revenue" and would gain the right to jointly set fares, schedules and services and the ability to negotiate with corporate clients on international routes where immunity extends. Continental must first submit a request to the U.S. Department of Transportation for antitrust immunity already granted to United, Lufthansa, Air Canada and other Star Alliance members.
The carriers in a statement today said, "Joint ventures are also planned for the Latin America and Asia/Pacific regions, involving Continental, United and other members of the Star Alliance. Both antitrust immunity and codesharing are subject to receipt of approvals from applicable national authorities." At press time, Continental had yet to file an official request with DOT, which recently approved a four-way joint venture agreement between four SkyTeam carriers, opening a regulatory door for approval
(BTNonline, May 22).
The deal is shy of the merger agreement that many in the industry expected the carriers to initiate earlier this year, but which Continental rebuffed in favor of a stand-alone plan
(BTNonline, April 28). "This is obviously a less risky way for them to go than moving forward with an acquisition that they clearly had second thoughts about," said Bob Brindley, vice president of the Americas for Advito, BCD Travel's consulting division.
Though the carriers did not advance merger attempts this year, Continental and United said today's agreement was born out of "opportunities identified and relationships developed during the parties' earlier merger discussions."
Where the deal falls most short of a merger is on the domestic front, as the carriers would be unable to gain antitrust immunity for intra-U.S. travel. However, Continental and United said they plan to initiate codesharing on domestic flights, "which facilitates the creation of itineraries using both carriers, as well as frequent flier program, elite customer recognition and airport lounge reciprocity."
"The teams worked well together to identify opportunities to create a unique and competitive partnership extending well beyond a traditional code share agreement," said United president and CEO Glenn Tilton in a statement today.
Before announcing its intentions to join the Star Alliance, Continental must hurdle "regulatory and other approvals" and overcome "certain contractual relationships" to terminate its membership in SkyTeam. Continental said it "may not be successful, and the time period for doing so may be out of Continental's control," the carrier said in a statement today.
SkyTeam chairman Leo van Wijk earlier this month told
BTN, "There are certain exit procedures, but I don't think they in the end are insurmountable or will keep them in an alliance where their future is not being best served
(BTNonline, June 11)."
Continental had been reevaluating its standing in SkyTeam since its alliance partners Delta and Northwest announced their plan to merge earlier this year. CEO Larry Kellner during Continental's first-quarter earnings call said, "We are committed to being an important player in one of the three global alliances so that we can offer a broad global network to our customers."
Some said Continental's involvement in alliance-wide corporate deals already had been waning, as the growing cooperation between Air France, Delta, KLM and Northwest further strained its membership.
"Within SkyTeam, we increasingly see four-way deals where Continental is already excluded from the contract," said Herman Mensink, vice president of Europe, Middle East and Africa for the Prism Group, following the Delta-Northwest tie-up.
With its days in SkyTeam numbered, Star appeared the most logical alliance fit, Brindley said. "In a lot of ways it doesn't surprise me, especially if you look at the potential partners after Delta and Northwest came together," Brindley said. "Continental and American just doesn't make sense, since there's a lot of overlap. Star gives them a more attractive potential partner, given where they fly, than Oneworld. There's not nearly as much overlap with United, and it gives Continental a bigger presence in the Pacific. It also gives United access more to the New York market via Newark, where they really in the last few years have been pulling back, while Continental is stronger in Latin America. Continental was in a position where they were the odd carrier out with SkyTeam. From that standpoint, I think it makes sense."