NYT: Continental, United exploring merger

Consolidation talks in the airline industry have reached Houston's Continental Airlines, The New York Times reports today: According to sources close to the companies, Continental and United Airlines are in preliminary merger talks because neither wants to be left at a disadvantage by a possible consolidation of US Airways and Delta Air Lines. The Times reports that Glenn Tilton and Larry Kellner, the CEOs of United and Continental, have met in person to talk about combining the airlines, but neither company would talk to the Times about any possible deal.

If a Continental-United merger is in the works, it's still a long way off: The airlines will want to wait and see how antitrust regulators handle the possible US Airways-Delta deal, and Continental's partnership with Northwest Airlines could allow Northwest to block certain of Continental's merger transactions. Plus, there would be a lot of labor issues to work out: US Airways and America West merged last year and the airlines' labor groups are still figuring out how to combine.

Neither Tilton nor Kellner have referred directly to the possibility of a merger, but Tilton told investors earlier this week that "We are not waiting for opportunities to come to us simply because we haven’t identified to you which one works best." According to the Chronicle, Kellner has said he would like Continental to stay independent, but the airline will do what it takes to protect its interests.

Continental is the country's fifth-largest airline, while United is the second-largest; the combined airline would be the largest U.S. carrier.