US carriers shelve merger talks

United is going to look at passing more costs on to customers

United Airlines and US Airways have shelved plans to merge, the two carriers' parent companies have said.

The airlines had been in talks for several months in a bid to make savings amid the pressures of high fuel costs.

But Glenn Tilton, head of United parent firm UAL, said "issues that could significantly dilute benefits from a transaction" had led to the decision.

Airlines have warned they face a tough future, as their fuel bills soar and passenger growth slows.

UAL was looking at ways of passing on costs to customers and to "size the business appropriately" as well as create new ways to increase revenue, Mr Tilton said.

Meanwhile, US Airways chief executive Doug Parker said that consolidation was needed in the sector, but that it was unlikely to happen in 2008.

Shares in both carriers fell sharply on the news.

Separately, Continental Airlines said that it was contemplating finding new alliance partners and that it may pull out of its SkyTeam deal.

The Houston-based carrier has held talks with British Airways and American Airlines about joining an alliance - though this would be likely to scupper its current arrangement with Virgin Atlantic, analysts say.

Revenue measures

This week, the International Air Transport Association (IATA) warned that the airline industry faced a "grim" outlook, saying passenger numbers would be dented by soaring fuel costs and economic turmoil.

The number of airline passengers grew by 3% in April from 5.4% in the same month the previous year, it said.

And for the first four months of the year, growth was 5.6%, as against 6.7% the previous year.

Besides fuel surcharges to try and reduce the impact of falling fuel bills, airlines have begun taking measures to boost revenue.

Last week, American Airlines said it would become the first major US carrier to charge passengers to check in a first bag.

And on Thursday, Delta Airlines said that it would offer redundancy to all 3,000 volunteers had come forward - despite initially only planning to lay off 2,000 workers.

The bigger-than-expected response to the offer meant the firm had more flexibility amid soaring jet fuel prices, it said.

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