Few airlines = high fares?

CHICAGO — A long-anticipated consolidation of U.S. airlines could mean higher fares for travelers as overlapping routes are eliminated, experts said Wednesday as talk of likely deals reverberated throughout the industry.

That's one reason why any such buyouts could draw intensified regulatory scrutiny, along with the potential for increased labor and service disruptions, as some consumer advocates warn.

Don't tell that to Wall Street. Airline stocks surged on news that United and Continental are holding preliminary discussions and after Air Tran launched a hostile takeover bid for Midwest, with other carriers also examining how to merge to keep up with bigger competition.

Numerous regulatory and other obstacles remain before any deal can occur, but industry observers said all the talks and recent airline restructurings have set the stage for big changes in the business next year.

"We're off to the races," said airline expert Terry Trippler, who has been monitoring the industry for 38 years. "2007 is going to be a major year — we are going to see some major consolidation."

UAL Corp.'s United Airlines and Continental Airlines Inc. declined comment on whether they are talking about teaming up. But a person close to the airlines who asked not to be identified said they have been exploring a possible combination in discussions that stepped up after US Airways Group Inc. made a hostile bid for bankrupt rival Delta Air Lines Inc. last month. The talks were said to be very preliminary, with no deal imminent.

The person did not want to be named because of the sensitive nature of the talks.

Putting together the nation's second- and fifth-largest carriers would produce an airline superpower — the nation's largest — merging United's strengths in the Pacific and western United States with Continental's successful operations in Latin America and the Atlantic market and its prosperous hub in Newark, N.J., a popular gateway to Europe.

That could enable United, slimmed down from a three-year bankruptcy restructuring that ended in February, and Continental to use their combined clout to reduce operating costs and become more profitable.

Analysts say other potential deal permutations that may be explored — if they haven't been already — include AMR Corp.'s American Airlines linking up with Northwest Airlines Corp., and they stress that counterparts routinely talk with one other about consolidation options.

But would a mega-airline be good for consumers? That depends on who's asked.

Most experts agree that less competition would boost fares, but some see boons for passengers, too.