'Deltanental' Talks Fuel Consolidation Speculation

<FONT SIZE="+3"><B>'Deltanental' Talks Fuel Consolidation Speculation</B>
By Jay Campbell

Details on talks between Continental and Delta about a possible merger remained scarce following initial reports on Dec. 4, but the industry was abuzz with speculation.

According to reports, most of which are unconfirmed, Continental CEO Gordon Bethune approached Delta CEO Ron Allen last summer with a proposal to merge in order to pre-empt both the American-BA alliance (<I>BTN</I>, Nov. 25) and the next round of consolidation in the domestic industry.

Bethune did not comment on talks with Delta during an interview with <I>BTN</I> on Dec. 6, but speaking generally about industry consolidation, he said, "it's hard to say exactly what it will be, but AA-BA will trigger something. The world isn't going to let them come together to dominate the marketplace." That's the reason Continental is pursuing its options, including its relationships with Alitalia, Air France and others, he said. Delta also has a new code-sharing arrangement with Air France.

Allegedly, Continental is not speaking with any other airlines about a merger, and it also is considering lesser options with Delta, which could include code sharing. In any case, Continental officials told employees that any deal "is not imminent."

A merger would prove a big windfall for frequent flyers of both carriers and also could improve service in some markets. But historically, mergers have generally resulted in higher prices, more restrictions and fewer flights in many markets as the carriers consolidate operations. In addition, this merger would almost undoubtedly spark further consolidation involving Northwest, TWA and/or USAir, which flirted with the idea last year (<I>BTN</I>, Oct. 16, 1995).

Close scrutiny from the Department of Justice would be expected for any and all such deals. Five major city pairs are among both carriers' top 10, including New York-Atlanta, where they have a combined 79.9 percent market share; New York-Ft. Lauderdale (68 percent), New York-Boston (63.7 percent), New York-Orlando (63.3 percent), and New York-Washington (54.5 percent), according to second quarter 1996 figures provided by the Department of Transportation. In addition, "Deltanental" would become the world's number-one carrier, with the most service of any U.S. airline to Europe and strong Asian and Latin American operations.

Joe Laughlin, United Airlines' director of business markets, said he thinks the deal could well happen. But, he said, "I think there are better matches."

Response from the corporate travel industry was tentative because so few details are out. "It will be good if they end up as a large carrier competing with other possible networks out there, such as BA-AA, but of course fares are a concern," said Iraj Amirseif, travel manager for Amoco Corp., based in Continental's Houston hub.

Like Amoco, Pfizer also considers both airlines to be preferred suppliers.

"I'd be concerned because it would make them a powerhouse in New York," said Phil Dunphy, manager of corporate travel for New York-based Pfizer.