The departure announced this week of Continental Airlines' CEO has spurred debate that the carrier could resume consolidation talks with new partner United Airlines, but the chance of a quick merger remains remote.
On Thursday, Continental said Chief Executive Larry Kellner would leave at year's end to head a new private investment company focused on real estate. Current COO Jeff Smisek is slated to take over next year.
The news sparked speculation over whether Continental would merge under the new leadership of Smisek, with Kellner facilitating a deal from outside the corner office.
We may see the stage a little more set for a merger, said Stuart Klaskin of KKC Aviation Consulting. (But) I continue to think it's unlikely.
Continental called off merger talks with United in April 2008 because of United parent company UAL Corp's weak financial position. The airlines then initiated a partnership, with Continental joining United in the global Star Alliance. The bid won government approval last week, permitting the pair to share pricing and scheduling on some routes.
The airline industry, battered in recent years by volatile fuel prices, low-cost competition and overcapacity, desperately needs consolidation, according to many experts.
Nearly every major U.S. airline was involved in some sort of merger scenario last year, but the only one that happened was Delta Air Lines' buy of Northwest Airlines.
CUT FROM THE SAME CLOTH
Given the similar approach and style between Smisek and Kellner, most analysts said a change in leadership is not likely to lead to dramatic, immediate changes in Continental's direction.
They added that both executives, who joined the carrier in the mid-1990s, tended to make decisions about the company together.
I would be surprised if there is a 180-degree change just because Smisek will be the new CEO, said William Swelbar, airline researcher with MIT and director of Hawaiian Holdings Inc.
Airline consultant Robert Mann, however, said Kellner may be more interested in brokering a merger for Continental as a company outsider.
It's easier to do it from the outside, Mann said.
The problem with doing it from the inside is the egos, Mann said, referring to potential leadership struggles that can emerge as two companies decide to proceed as one. Egos in this business are just too big.
More than Smisek's appointment, Continental's new partnership with United in the Star Alliance is more likely to pave the way for a merger, but any union would be years away, said Hunter Keay, analyst with Stifel Nicolaus.
They're essentially merging their networks over the next six months, Keay said. I would say it certainly puts them closer to a potential M&A situation.
The barriers to consolidation are huge. And chief among them these days is antitrust concerns.
There will be some political pushback, said Morningstar airline analyst Basili Alukos. There's been a lot of talk out of the antitrust division of the Department of Justice criticizing the past administration's approach, letting the free markets reign, more or less.
(Additional reporting by Karen Jacobs; Editing by Patrick Fitzgibbons and Richard Chang)