American Airlines in talks with Continental, US Air

By Jui Chakravorty Das

NEW YORK (Reuters) - American Airlines (AMR.N: Quote, Profile, Research) has had early-stage merger talks with US Airways (LCC.N: Quote, Profile, Research) and is in advanced talks for an alliance with Continental Airlines (CAL.N: Quote, Profile, Research), sources briefed on the situation said on Friday.

News of the talks comes after Delta Air Lines' (DAL.N: Quote, Profile, Research) and Northwest Airlines' (NWA.N: Quote, Profile, Research) announced nearly two weeks ago they planned to merge to become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and a growing competitive threat from European carriers as trade barriers fall on trans-Atlantic travel.

American Airlines' talks with Continental are focused on forming an alliance that could share passengers, much like the SkyTeam partnership that includes Air France-KLM (AIRF.PA: Quote, Profile, Research), Alitalia (AZPIa.MI: Quote, Profile, Research), Czech Airlines, Delta Air Lines (DAL.N: Quote, Profile, Research), and Northwest Airlines (NWA.N: Quote, Profile, Research), the people said.

Alliances have flourished in the industry because they generate profits through marketing programs and flight code-sharing without the headaches of combining operations.

But Continental is also in advanced talks with United Airlines (UAUA.O: Quote, Profile, Research) for a full merger, the sources said. Continental will choose either the merger or the alliance, not both, sources said.

As folks have mentioned before - Larry Kellner has posted on numerous occasions to the CAL pilot group he has 6 long term strategies - with only a couple of them focusing on merging with UAL. Us forming a strong alliance with AA in the OneWorld Alliance network would be a strong move for our future internationally. With 6 confirmed 777's coming on and 25 confirmed 787 orders with options for more - this would keep CAL a very strong international player out of our EWR hub, sans any merger with UAL. Also, we've got brand new 737-900ER's arriving on property monthly that are continuing to strengthen our Latin American precense. Points to ponder.