The Civil Aeronautics Board yesterday turned down a proposed merger between Continental Airlines and Western Airlines.
It was the first airline merger proposal the board has rejected since the Airline Deregulation Act was passed last year. A Southern Airways-North Central Airlines combination into Republic Iarlines got a government stamp of approval, and the board has tentatively approved competing bids by Pan American World Airways and Texas International Airlines to take over National Airlines.
Although board members and staff emphasize that each merger case differs and no overall guidelines can be gleaned from any of its merger decisions, yesterday's action may still serve as a harbinger. The discussion seemed to reflect a strong disinclination on the part of a majority of the board to approve a merger between two major airlines whose route systems substantially overlap.
The 3-to-1 vote against the merger followed extensive discussion that approving a combination of two carriers that serve so many of the same airports would be anticompetitive, even though the lone dissenter, Richard O'Melia, argued that Congress meant to deregulate the airline industry and airlines ought to be allowed to merge if they want to.
"The key element in making deregulation work is to preserve competition," CAB Chairman Marvin S. Cohen argued. "I think all the evidence suggests this merger may substantially lessen competition."
Continental and Western are two of the smaller major airlines and have similar characteristics: both have headquarters in Los Angeles, operate mainly in the West with similar aircraft, and have been consistently profitable. Although they compete directly on only a handful of routes, they operate from many of the same cities, especially west of Denver. According to the two airlines, 13 common cities account for more than 50 percent of their comibined revenue.
Although deregulation has made entry into new routes easier - and both airlines have recently started new routes to Washington - CAB members and staff suggested yesterday that there are contraints, such as airport limitations, that keep entry from being totally free. Further, they indicated, Continental and Western are logical potential competitors, since they serve so many of the same cities.
Board members especially worried that a combined Continental-Western would share with United Airlines a substantial percentage of traffic on many routes, serving to inhibit entery by other airlines and possibly making United and the merged carrier less aggressive competitors.
Although the board decision was technically in the form of instructions to the staff to prepare a final opinion - it is unlikely that the vote will be altered. Board members were undecided whether the decision had to go to the president, whose approval is needed when the board approves a merger involving a transfer of international routes.
Continental and Western officials expressed shock at the decision.