Continental Airlines Inc. and UAL Corp.'s United Airlines gave strong signals Tuesday that they would consider a merger, either together or with other carriers, raising the prospect of another big airline deal.
A combination of the two would create an even larger airline behemoth than Monday's proposed joining of Delta Air Lines Inc. and Northwest Airlines Corp., and could drastically alter the industry's competitive landscape.
A United-Continental deal would have a significant effect on Southern California travelers because the combined airline would become the largest carrier at Los Angeles International Airport, accounting for 18% of the passenger traffic there, surpassing American Airlines, which has 15% of the market share.
In the end, the industry shakeout could mean substantially higher fares, resulting in fewer people traveling by air, some aviation experts believe.
With industry consolidation and the recent demise of three discount carriers, "you have a perfect storm of badness for the consumer," said Roland T. Rust, chairman of the marketing department at the University of Maryland's business school. "It's just a real bad situation -- and it's likely to get dramatically worse."
The possibility of a second major airline deal came as concerns were being raised in Congress that a Delta-Northwest combination would lead to higher fares and fewer flights. The proposed marriage of Delta and Northwest would create the world's largest airline, surpassing American.
"In our experience, the inescapable lesson of three decades of deregulation is that mergers and the resulting reductions in competition often lead to higher fares, deterioration in service and financially weakened surviving airlines," said Rep. Jerry F. Costello (D-Ill.), chairman of the House aviation subcommittee.
Rep. James Oberstar (D-Minn.), chairman of the House Transportation Committee and a key critic of airline consolidation, said he and other critics would rally lawmakers worried about losing airline service in their states to ensure that the deal undergoes a thorough scrubbing.
"We will marshal all the forces we can -- within the Congress and from the communities served by the existing carriers," he said.
Although some lawmakers may intensely scrutinize the deal, financial analysts said, Congress can do little to block it. They predicted that the combination would win approval from the Bush administration by the end of the year. The marriage needs the approval of the Justice Department, which could block the deal if it found that the combination was anti-competitive.
