The US air transportation industry is rife with speculation that Continental Airlines has opened strategic discussions with Delta Air Lines in a move that could result in three competing airline groupings controlling nearly 90% of the country's domestic and international passenger traffic.

Talk of further US consolidation follows court approval of American Airlines' take-over plans for TWA. In response to reports that it was also now looking for new partners, Continental has stated that it "routinely monitors change in the competitive landscape and engages in analysis and discussions regarding its strategic positions, including business combinations".

Any tie-up between Continental and Delta would require the acquiescence of Northwest Air-lines, which still maintains a 7% interest in Continental and has power of veto over the sale of the Houston-based carrier's stock as part of a recent anti-trust settlement with the Department of Justice (DoJ). Northwest was forced to sell its 51% voting stock in Continental, but both carriers were allowed to extend their alliance for 25 years .

A deal between Delta, Northwest and Continental, the country's third, fourth and fifth largest carriers respectively, would leave the three controlling 39% of US passenger traffic, Department of Transportations statistics reveal.

While many question the synergy of a Northwest tie-up with Delta, the three carriers face the prospect of having to compete in a market of which almost 50% could be dominated by United Airlines and American.

United offered $11.6 billion for US Airways in May, while in January, American extended bankrupt TWA a $3.5 billion lifeline. These transactions require DoJ approval and have both attracted criticism.

"The United and American proposals would reduce competition in approximately 300 markets, affecting over 10 million passengers. They would allow the new larger carriers to dominate 100new markets," notes a new General Accounting Office report.

American made concessions to secure court approval, including auctioning off TWA's 26% stake in the Worldspan computer reservation system separately for $200 million or less. Northwest, which, with Delta, owns the remainder of Worldspan, is interested in buying TWA's stake.

Source: Flight International