Continental – United alliance: who is saving who more?

It is not clear which airline needs more than the other, but it is apparent that the cooperation between United Airlines and Continental Airlines, allowing the latter to join Star Alliance Network, will indeed benefit both.

Before United Airlines announced its unprecedented cooperation with Continental Airlines, United Airlines’ elite 1K club members were sent a letter written by Robert Sahadevan, United’s Mileage Plus vice president, and the letter stated, “As a valued Mileage Plus member, we wanted you to be among the first to hear that Continental and United today announced plans to cooperate globally, linking our networks and services worldwide to deliver new benefits to you. In addition, Continental plans to join United in the Star Alliance, the most comprehensive airline alliance in the world.”

According to United, “this partnership will include new frequent flier reciprocity that will enable you to earn miles when flying on either airline and redeem awards on both carriers. Travel on either carrier will count toward earning elite status. Similarly, members of either airline’s airport lounge program will have access to both Continental’s President’s Club network and United’s Red Carpet Club lounges.”

The letter also stated, “Together with Continental, we will be able to offer you a more comprehensive domestic route network and together with our Star Alliance partners, greater choice of service throughout the entire world.”

Sahadevan added that once regulatory approval is obtained, this new partnership between United and Continental will expand their choice of flights and destinations, and improve their ability to earn both miles and elite status in Mileage Plus. “Together we will offer you more value whenever you fly. We expect to bring you the benefits of our cooperation starting some time in 2009, and until then, we will keep you informed about our progress.”

Shortly after United’s letter was circulated to its 1K members, an official statement was released. “Continental’s plan to partner with United and join the Star Alliance will provide substantial new opportunities for all of our customers,” said Larry Kellner, chairman and CEO of Continental. “In a network business, there is significant value gained from linking with larger networks to provide truly national coverage and expanded global reach and exploring new ways to reduce costs and improve efficiencies. As we experience some of the most challenging conditions airlines have ever faced, we look forward to the benefits of a new relationship with United and the other Star Alliance members.”

According to United, teams from the two organizations worked intensively over the last several weeks exploring creative solutions for how the two companies could achieve efficiencies and synergies that expand beyond the well-established benefits of codesharing. “Their work focused on plans for significant cooperation on frequent flier programs, lounges, facility utilization, information technology and procurement,” United said. “This work was assisted by the efficiency opportunities identified and relationships developed during the parties’ earlier merger discussions.”

“The teams worked well together to identify opportunities to create a unique and competitive partnership extending well beyond a traditional code share agreement,” said Glenn Tilton, chairman, president and CEO of United. “On behalf of the Star Alliance, I am very pleased to invite Continental to join as a member. Continental will bring significant new assets to our global alliance, and our two companies will work together effectively with our partners to provide the best overall network in America and the world.”

Through this new partnership, the two airlines said they are planning to establish joint ventures allowing them to cooperate with each other and with other Star Alliance airlines in international regions and compete more effectively in an increasingly global air travel market.

So, what’s next?
Continental will request the US Department of Transportation (DOT) to allow it to join United — along with Lufthansa, Air Canada and six other carriers — in their already established antitrust immunized alliance. This will enable Continental, United, Lufthansa, Air Canada and other immunized Star Alliance carriers to work closely together, as other antitrust immunized alliances do, and to establish trans-Atlantic and other international joint ventures so they can deliver highly-competitive flight schedules, fares and service. The planned trans-Atlantic joint venture, in which Continental, United, Lufthansa and Air Canada will pool revenue, will permit the carriers to compete more effectively with the proposed joint venture involving certain SkyTeam members that was recently granted antitrust immunity. The trans-Atlantic joint venture will combine the strength of the carriers to create a more efficient and comprehensive trans-Atlantic network for the carriers’ customers.

According to United, 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 code-sharing are subject to receipt of approvals from applicable national authorities.