Shares in Continental Airlines rose more than 8 percent on Monday, sparking a broader sector rally, amid speculation that the number 4 US carrier could be the target of a takeover offer.
Late last week, bankrupt rival Northwest Airlines asked permission to hire financial advisory firm Evercore Group to help it evaluate strategic alternatives, including a merger. Continental is seen as a likely partner.
"What opportunities they're going to be looking at, I tend to think they're going to look at them through the lens of Continental first," said Stuart Klaskin with KKC Aviation Consulting.
Continental and Northwest have a history. In 2001, Northwest was granted a so-called "golden share," giving it the right to block mergers involving Continental.
The golden share was granted in exchange for Northwest's agreement to sell its shares in Continental after Northwest, ranked just behind Continental in the US market, was sued for anti-competitive behavior by the US Department of Justice.
Continental, which prefers to remain independent, has recently said it would consider a merger, if necessary, in order to remain competitive.
The speculation follows an unsolicited bid last month by seventh-ranked US Airways to acquire bankrupt rival Delta Air Lines, the number 3 US carrier, for about USD$8.9 billion. Analysts expected that offer to spark counter bids for Delta or separate mergers in the fragmented and highly competitive US airline industry.
Analysts say second-ranked United Airlines, which will hold an analyst meeting on Tuesday, is among the likeliest to enter the merger fray.
"We would not be surprised if United Airlines made an announcement (at the meeting) regarding consolidation," said Helane Becker, an analyst at Benchmark Co. She says United could be interested in Delta or Continental.
Northwest, which hopes to emerge from bankruptcy next year, is seen as more in need of a partner than Continental, which analysts say has a coveted position in the New York market and an attractive international network.
"I think Northwest is going to be a participant in some sort of consolidation, but I don't think they will necessarily be involved in doing something with Continental," Klaskin said. He said a merger between Northwest and Continental would be complicated by overlapping European and Asian routes.