April 27 (Bloomberg) -- Continental Airlines Inc., the fourth-largest U.S. carrier, said it decided to remain independent after weeks of speculation that it would merge with United Airlines.

Continental's board unanimously approved a recommendation from its executives following a ``comprehensive'' review that included outside financial and legal advisers, the airline said in a message to employees. Continental, which had been in talks with UAL Corp.'s United, said it now will focus on a possible shift to a new global airline alliance.

``The risks of a merger at this time outweigh the potential rewards,'' Chief Executive Officer Larry Kellner said in the letter. ``While some would prefer to see Continental pursue a merger, we strongly believe we have made the right decision.''

The announcement eases some of the merger momentum spurred by Delta Air Lines Inc.'s agreement two weeks ago to acquire Northwest Airlines Corp. Kellner himself had fostered expectations by saying a changing competitive landscape may force Continental to rethink its goal of remaining independent.

Those changes included soaring jet-fuel costs and slowing demand that led the six biggest U.S. carriers to post first- quarter losses.

At Risk

Continental would have faced challenges in a tie-up with United, including meshing labor groups and different fleet types as well as deteriorating market conditions that contributed to United's $537 million first-quarter loss, said Robert Mann, head of R.W. Mann & Co., an airline consultant, in an interview.

``It's like trying to catch a falling knife,'' he said. ``You might be lucky enough, but maybe not.''

A combination with another carrier could place at risk Continental's ``significant cultural, operational and financial strengths,'' Kellner said in the message to the airline's 45,000 employees.

Continental will continue to review its membership in the global SkyTeam alliance, which also includes Delta and Northwest, along with Air France-KLM.

``We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term,'' Kellner said.

Air Alliances

Delta, Northwest and Air France-KLM, Europe's largest airline, earlier this month won approval from U.S. regulators to collaborate on international flights within the alliance. The decision allows them to funnel passengers to each others' networks and to operate more like a single entity by cooperating on route planning, marketing and setting fares.

The decision put new pressure on AMR Corp.'s American Airlines, which doesn't have such immunity with British Airways Plc, its primary partner in the competing Oneworld alliance. Continental held preliminary talks with American earlier, a person familiar with the matter has said. American spokesman Tim Smith declined to comment.

A combination of Continental and Chicago-based United would have surpassed the planned Delta-Northwest tie-up as the world's largest carrier. That rank, based on passenger traffic, is now held by American.

``It shows the staunch independence and what Continental views as their durability in this sort of a market,'' Mann said.

A Natural

Analysts had seen a Continental-United link as a natural combination after the Delta-Northwest plan was announced. United Chief Executive Officer Glenn Tilton has advocated consolidation in the U.S. airline industry for at least four years, and Continental began reviewing its options after Delta paired with Northwest.

``Consolidation is underway,'' Tilton said in a statement released after Continental's announcement. ``Ensuring you have the right partner is everything. We will pursue all options to ensure a strong, sustainable future for our airline.''

The Delta-Northwest announcement allowed Continental to redeem a special preferred share that gave Northwest veto power over any merger involving Continental. Northwest acquired the share in 2000, when it gave up a controlling stake in Continental because of opposition from U.S. antitrust regulators.

United's shares tumbled 37 percent on April 22 after the airline reported a first-quarter loss wider than analysts expected and some investors questioned whether the carrier had sufficient cash to meet loan covenants. United, which said the concerns were unfounded, is cutting 1,100 jobs and further reducing capacity after the loss.

Continental, which had a first-quarter loss of $80 million, said on April 17 it would ground 14 older, less fuel-efficient aircraft on top of 34 it already planned to stop flying and would trim capacity by an undetermined amount at its regional airline partners.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net

Last Updated: April 27, 2008 21:08 EDT