Continental Airlines Isn't Interested In Pursuing Merger Soon, CEO Says

DALLAS, April 27 -- Continental Airlines said Sunday that it would not pursue a combination with another carrier right away, a surprising move after weeks of speculation that it would join with United Airlines to create the world's biggest airline.

Lawrence W. Kellner, Continental's chairman and chief executive, said in a message to employees that the Houston-based airline was better off alone than merging.

"We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths -- which we believe would be placed at risk in a merger with another carrier in today's environment," Kellner told employees.

Although it reported an $80 million loss in the first quarter, Continental is widely viewed as the second-strongest U.S. carrier in financial terms, behind Southwest Airlines, which has indicated it isn't interested in a merger.

While Kellner ruled out a merger for the time being, Continental appeared to leave the door open to an alliance with another carrier. The airline has reportedly discussed such an arrangement with AMR, the parent company of American Airlines, in which the firms would work together but not merge their operations.

Airlines have been considering consolidation as a way to cut costs as they face the strain of record fuel prices. Delta Air Lines announced this month that it has agreed to buy Northwest Airlines in a stock-swap deal that would create the world's largest carrier. A Continental-United combination would have trumped Delta-Northwest in size.

A United spokesman did not immediately return a call for comment.

"Every U.S. carrier, including Continental, is under enormous pressure from record high fuel prices, a slowing U.S. economy and a weak dollar," Kellner told employees. "In today's harsh environment, we must continue to adjust our business model to ensure we successfully navigate through these difficult times, so that in the future we can once again grow and prosper."

Continental expects to spend $1.2 billion more on fuel this year than it did in 2007. To cope with the added cost, the airline plans to take some older, less-fuel-efficient planes out of service over the next 12 months and to reduce its U.S. capacity by 5 percent beginning this fall.

A spokesman for Continental's union pilots said the pilots were pleased that the company won't pursue a merger, given the weak condition of other carriers. United Airlines parent UAL, for example, lost $537 million in the first quarter and announced it would cut 1,100 jobs.

"We are somewhat relieved," said the union spokesman, Mark Adams. "We look around at the first-quarter financials from the other legacy carriers. Do you really want to swim out to a drowning man and just get pulled down with them?"

Kellner had long said Continental would prefer to remain independent -- if the landscape of the airline industry stayed the same.