UAL’s Tilton Says Air Alliances Ease Path to Mergers

United Airlines Chief Executive Officer Glenn Tilton said the path toward future industry mergers is being smoothed by global alliances that forge closer ties among U.S. carriers.

A merger involving U.S. airlines is likely in the next 12 to 24 months, Tilton said today in an interview in New York.

Meshing operations with alliance partners means that once shareholders warm to a merger or acquisition, “it would be easier to take the next step than it otherwise would be,” he said earlier in a speech to an aviation group.

Tilton’s comments linked his support of airline consolidation, an idea he has championed since at least 2004, with the industry’s recent embrace of alliances that achieve some merger benefits at less risk. He has led Chicago-based United since September 2002.

UAL Corp.’s United, the third-largest U.S. carrier, and No. 4 Continental Airlines Inc. ended merger talks in 2008 before a deal was reached. A combination of the two is “inevitable,” wrote Daniel McKenzie, a Next Generation Equity Research LLC analyst in Chicago, in a November note to clients.

UAL fell 42 cents, or 3.1 percent, to $13.13 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares have gained 20 percent in the past year.

Deepening Ties

United and Continental are already deepening their ties. The Houston-based carrier last year joined United in the Star Alliance airline-marketing group after leaving Delta Air Lines Inc. (DAL)’s SkyTeam.

Last month, United, Continental and Japan’s All Nippon Airways Co. (9202) applied for U.S. antitrust immunity to expand their alliance so they could collaborate on prices and schedules on trans-Pacific routes.

“Alliances really haven’t yet realized their full potential on the cost side,” Tilton said in the interview. “There is procurement, ground handling, a whole suite of opportunities to reduce associated costs that mergers realize more compellingly than alliances.”

Delta is now working to lure Japan Airlines Corp. out of the Oneworld alliance led by AMR Corp.’s American Airlines, a contest that may reshape airlines’ market share on flights between the two countries.

SkyTeam, Oneworld and Star now have roughly equal service on U.S.-Japan routes. A Delta-Japan Air deal would control about 58 percent of the market, and leave Fort Worth, Texas-based American with about 6 percent on its own.

Asked whether United prefers that Japan Air switch its allegiance to Atlanta-based Delta or stick with American, Tilton said: “I hope it takes a really long time. I hope it takes three years to sort out. There would be a lot of work and distraction involved in those three years.”

To contact the reporter on this story: Mary Jane Credeur in New York at mcredeur@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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