United in alliance talks with Continental--sources

By Jui Chakravorty Das

NEW YORK (Reuters) - United Airlines has begun talks with Continental Airlines Inc (CAL.N: Quote, Profile, Research) for a possible alliance even as its merger talks with US Airways continue to advance, sources briefed on the matter said.

United, a unit of UAL Corp (UAUA.O: Quote, Profile, Research), will make a decision on whether to merge with US Airways soon, two people said, adding that a deal with US Airways Group Inc (LCC.N: Quote, Profile, Research) is likely, but not imminent. The sources declined to be identified because of the confidential nature of the talks.

Although United's board of directors had a meeting on Thursday, no decision is expected, the people said.

Continental Airlines, which called off merger talks with United in late April, is also in advanced alliance talks with American Airlines AMR Corp (AMR.N: Quote, Profile, Research) and British Airways Plc (BAY.L: Quote, Profile, Research), sources have previously told Reuters.

The wave of talks come after Delta Air Lines Inc (DAL.N: Quote, Profile, Research) and Northwest Airlines Corp (NWA.N: Quote, Profile, Research) said in April they planned to merge and become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel.

After racking up $35 billion in losses and finally emerging from a 5-year slump in 2006, U.S. airlines are hoping mergers could give them greater market power to reduce flights and raise fares.

The airlines also face a renewed sense of urgency to cut costs as jet fuel prices have more than doubled since the start of last year.

Continental, American and British are looking at forming alliances and then seeking antitrust immunity. United would also seek immunity if it were to form an alliance with Continental, one of the sources said.