United Airlines: Mergers Can Work

CHICAGO (TheStreet) -- The president of United(UAUA) says the successful execution of the merger between Delta(DAL)and Northwest should change the way airline mergers are viewed and could make them easier going forward.

"To Delta/Northwest's credit, they're proving that you can capture value and execute a successful merger," United President John Tague said, in an interview with TheStreet.com. "Obviously, it's not (completely) done, but you'd have to say that consolidation is going well.

"It's inarguable," he added. "It's a recent proof point -- we didn't have a recent proof point before."

While scale has an obvious value in the airline industry, "acquisition for the sake of acquisition, if you're doing nothing other than buying revenues, doesn't make sense," Tague said. "Clearly it's important that you get synergies out of the cost side. Look at any other industry that does mergers, you've got to be extremely effective on cost takeout while maintaining your improving quality levels."

Continental(CAL) and United discussed a merger in 2008 before breaking off talks in April. Continental subsequently accepted an invitation from United CEO Glenn Tilton to join the Star alliance. Continental had been a member of Skyteam, which includes Delta and Air France/KLM. Delta announced its merger with Northwest in October 2008.

Tague's remarks came three weeks after Continental President Jeff Smisek discussed the possibility of renewing merger talks. Smisek spoke as Continental formally joined Star.

"We are watching Delta to see whether Delta outperforms us financially," Smisek said, in a Bloomberg Television interview. "To date they have not done so. They've gotten bigger, they've gotten more complex, but they haven't gotten profitable."