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Continental Has Talks With UAL, American, Person Says

Feb. 15 (Bloomberg) -- Continental Airlines Inc. is holding merger talks with UAL Corp.'s United Airlines and has met with AMR Corp.'s American Airlines, a person with knowledge of the matter said.

Continental's discussions with United are in their early stages, said the person, who asked not to be identified because the sessions are private. The person wouldn't characterize the status of the meetings with American.

The talks mean that the five biggest U.S. airlines have all discussed consolidation as they struggle with rising fuel prices and a possible drop in travel demand. Delta Air Lines Inc. and Northwest Airlines Corp. may announce a tie-up as early as next week, people familiar with the matter have said.

``There are arguments to be made for Continental tying up with either American or United,'' Stuart Klaskin of KKC Aviation Consulting Inc. in Miami said in an interview. ``There's a certain amount of overlap in either combination, but the argument can be made that if you're eliminating a competitor by merging, that's a good thing.''

American is the world's largest airline by passenger traffic. Among U.S. carriers, it is followed by United, Delta, Continental and Northwest. A United-Continental or Delta- Northwest tie-up would vault into the No. 1 spot worldwide.

Airlines Silent

Continental spokesman David Messing, American spokesman Tim Smith and United spokeswoman Jean Medina declined to comment. The Chicago Tribune reported yesterday that Continental and Chicago-based United were in advanced talks.

Continental rose 99 cents, or 3.5 percent, to $29.69 at 4:17 p.m. in New York Stock Exchange composite trading, while AMR increased 44 cents, or 3 percent, to $15.25. UAL gained 32 cents to $37.35 on the Nasdaq Stock Market.

United Chief Executive Officer Glenn Tilton has pushed for consolidation among U.S. carriers since 2005, while Continental CEO Larry Kellner has said his Houston-based airline would prefer to remain independent, although it would act ``aggressively'' in the right circumstances.

American Chief Financial Officer Tom Horton said on the Fort Worth, Texas-based airline's quarterly earnings call last month that ``we don't speculate on what our role might be, if any,'' in airline consolidation.

``We do think consolidation has the potential to create efficiencies and expand product offerings and benefit the industry and consumers,'' Horton added.

BLOOMBERG