NEW YORK – Shares of Continental Airlines and the parent of United Airlines rose in afternoon trading Thursday after The New York Times reported that the carriers are talking about combining and creating the world's largest carrier.
The newspaper's DealBook blog cited people briefed on the discussions, who said the talks were in early stages and could still collapse.
The news comes a week after reports that United and US Airways have been talking about combining. Analysts say a United-Continental combination makes more sense than United hooking up with US Airways because of Continental's strong international routes.
A spokeswoman for United said it doesn't comment on rumors. Continental Airlines Inc., which rejected a combination with United in 2008, also wouldn't comment.
Shares of Continental rose 44 cents to $23.69 in afternoon trading. United parent UAL Corp. gained 82 cents, or 3.7 percent, at $23.18; while US Airways Group Inc. fell 3 cents to $7.39.
If they combine, United and Continental would become the world's largest airline by traffic, jumping over Delta Air Lines Inc. A United-US Airways combination would still be smaller than Delta, which bulked up by buying Northwest in 2008.
Standard & Poor's analyst Jim Corridore reiterated his "Hold" rating on UAL shares after the New York Times report.
"We think there are merits to a combination of United with either party, but believe (Continental-United) would be a more compelling option, with less network overlap and a stronger international network," Corridore said.
Continental executives have long said they preferred to remain independent, but the changing landscape of the airline industry could force them to combine with another airline.
Size matters to international airlines because high-fare business travelers demand convenient schedules to places they want to go.
Continental has always been big enough to compete, but if it stands idle while United combines with US Airways, it would be the smallest of the so-called legacy carriers. Continental would be half the size of Delta and the new United-US Airways, and far smaller than American Airlines too.
The push to consolidate also is being driven by a belief in the airline business that the industry will benefit if there are fewer carriers. The remaining airlines would have more power to raise fares to cope with high fuel prices.
Daniel McKenzie, an analyst with Hudson Securities, said Continental could still go it alone, but if it doesn't combine with United now it won't get another chance.
