A linkup of the two carriers would have allowed them to combine networks and consolidate airport operations, trim flights and staff and gain pricing power with suppliers and consumers.

It would have put them in better position to compete with the soon-to-be-merged Delta Air Lines and Northwest Airlines.

But Continental abruptly pulled out of negotiations after earnings reports showed United’s financial position had weakened.

Since then, Continental, the top carrier at Newark Liberty International Airport, decided to do what may be the next best thing from its perspective: combine forces with United and other members of the so-called Star Alliance of airlines, and get the federal government to waive antitrust laws aimed at prohibiting price fixing and other forms of collusion.

Continental also sought antitrust immunity so that it and other Star members can act as one carrier by coordinating schedules and fares.

Continental’s decision to leave the SkyTeam alliance and join United, Lufthansa and others in Star is part of a larger trend: Rivalries increasingly are between international teams of airlines positioned to take advantage of less-restrictive international open skies treaties and not between individual carriers.

In the early 1990s, the global airline industry was comprised of individual carriers competing on routes connecting one city to another, said Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa.

“Now, public policy has given us a new model of networks competing with each other on a network basis, and it’s a whole new world,” he said.

The way the new battleground is shaping up since the United States and European Union entered into an open skies agreement early last year, Star competes with SkyTeam and both compete with the the 10-member Oneworld Alliance, which includes American Airlines, British Airways and Qantas.

The Department of Transportation granted antitrust immunity last year to Delta, its merger partner Northwest and four other SkyTeam players — Air France, Alitalia, Czech Airlines and KLM Royal Dutch Airlines. Oneworld carriers are waiting for a DOT ruling on their request for expanded immunity and a closer relationship between American Airlines and British Airways.

Continental’s inclusion in the Star Alliance, approved last month by DOT, will give Continental “more flexibility to serve their better customers,” said Raymond Neidl, an independent airline analyst. The arrangement should also make Continental better able to hold market share in the New York metropolitan area as Delta creates a domestic hub at La Guardia International Airport.

“Long term it should be beneficial for Continental and United,” Neidl said.

Transportation Secretary Ray LaHood said in a statement that the alliances “will benefit consumers, enhance competition and preserve jobs.”

Specific routes that will be operated cooperatively have not been identified, but Continental said Monday in a statement announcing it will join Star on Oct. 27 that the hub at Newark Airport “will play a particularly important role.”

The expanded Star agreements approved by DOT allow Continental to cooperate with nine Star Alliance members: Air Canada, Austrian Airlines, British carrier BMI, LOT Polish Airlines, Lufthansa, Scandinavian Airlines (SAS), Swiss International Air Lines, TAP Air Portugal and United. The DOT also approved a trans-Atlantic joint venture called Atlantic Plus-Plus, which involves Continental, Air Canada, Lufthansa, and United.

The four participants in Atlantic Plus-Plus expect “to operate a substantial portion of their international air services within the venture,” the DOT said in its final order, which gives the carriers 18 months to launch the effort.

“The venture, as well as the broader alliance, will create substantial new service options and fare benefits for consumers,” the department said.

However, the Department of Justice had voiced objections to parts of the expanded Star Alliance that it viewed as anti-competitive.

The DOT, which had the final say, acted on some of the criticisms, denying the airlines’ requests for immunity on routes where it would result in little or no competition. These “carve-outs” in the trans-Atlantic corridor include routes connecting New York (and Newark) to Copenhagen, Stockholm, Geneva and Lisbon, Portugal. Carve-outs also will be required on routes connecting New York and Ottawa.

The DOT’s approval, even with the carve-outs, allayed consolidation-minded airlines’ concerns that the White House would turn sharply away from the previous administration’s pro-merger and alliance stance, said Mike Boyd, a Colorado aviation consultant.

“For New Jersey business travelers (the agreements) will provide a convenient extension of routes from cities that we can fly to non-stop out of Newark,” said Sara Bluhm, assistant vice president for energy and federal affairs at the business and industry association, which represents more than 22,000 New Jersey businesses.

Travel will be “more seamless,” she said, adding that Continental’s greater reach from the Newark hub “makes New Jersey a more attractive place for foreign companies to come and do business here.”

The union and the company have been negotiating since July 2007 on a deal to update the current contract, which became amendable on Wednesday.
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The union wants to recover wage concessions made in 2005, which it estimated at more than $200 million per year.

Under federal law, labor contracts in the airline industry don’t expire, and there are legal obstacles before workers can legally go on strike.

Continental has nearly 5,000 pilots, who are represented by the Air Line Pilots Association. Union officials said they have agreements on eight sections of the contract but dozens more are unsettled.

“Our pilots have been working long enough under the concessions of our current contract,” said Jay Pierce, leader of the Continental group within ALPA. “The givebacks that were designed to help keep Continental out of bankruptcy were a loan to secure our futures … and now it is past due.”

Julie King, a spokeswoman for Houston-based Continental, the nation’s fourth-largest airline, said the company would “continue to work closely with our pilot group, as we do with all of our employee groups.”

In a ruling released Monday, a state appeals court upheld a lower court ruling dismissing the lawsuit filed by Melissa Mersmann and ordering her to pay $2,500 in attorneys’ fees to Continental.

The lawsuit stemmed from events in early 2002, when Mersmann was fired for her conduct during a Feb. 17 flight from Aruba to Newark.

In court filings, the company claimed Mersmann “as a result of being intoxicated, engaged in such severe misconduct as to warrant termination.”

Specifically, the company alleged, Mersmann was late for the flight, made inappropriate announcements over the plane’s intercom, smelled of alcohol, vomited twice during the flight and was unable to perform her duties.

Mersmann’s blood alcohol level was tested at .061 when she arrived at Newark, higher than the .04 reading that, under an existing collective bargaining agreement, mandates flight attendants undergo evaluation and complete any recommended rehabilitation before resuming work.

Mersmann, who had worked as a flight attendant for Houston-based Continental since 1985, acknowledged she had consumed alcohol during her two-day layover in Aruba but not in the 11 hours preceding the flight, and suggested a prescription medication she was taking could have skewed the test results.

She also argued that the positive test was not grounds for termination by itself, but an arbitration panel found that the test combined with “other serious misconduct” on the flight justified Continental’s decision.

Mersmann sued Continental claiming age discrimination, noting that her employment record included several promotions and commendations, but the suit was dismissed in 2005 and affirmed on appeal in 2006.

She sued again in 2006, claiming discrimination and retaliation after she applied for a flight attendant job at Continental and was rejected, but a judge dismissed the suit in 2007 and ordered her to pay attorneys’ fees.

Herbert Tan, an attorney representing Mersmann, did not return a phone message Monday, and attorneys representing Continental could not immediately be reached.

Airlines are studying the use of alternative fuels to help deal with volatile jet fuel prices that spiked to record highs this summer, and to reduce emissions of greenhouse gases.

Continental said the plane on the Jan. 7 flight in Houston will use a special blend of half conventional fuel and half biofuel with ingredients derived from algae and jatropha plants.

The airline said it would be the first flight by a commercial carrier using algae as a fuel source and the first with a two-engine aircraft, a Boeing 737-800.

Houston-based Continental said its partners on the project include jet maker Boeing Co., which helped form a group in Seattle to look for sustainable fuels that don’t use farm land to produce the ingredients.

Other partners include CFM International, an engine maker and joint venture between General Electric Co. and Snecma; a Honeywell technology development unit; and oil providers Sapphire Energy and Terrasol.

Next month’s test flight will be operated by Continental test pilots who plan to run one engine on the biofuel blend and take it through power accelerations and slowdowns, in-flight engine shutdown and restart and other maneuvers. The airline said it expected a post-flight analysis would show that the lower-emission biofuel plan can substitute for regular fuel without loss of performance or safety.

An average Continental flight burns 18 gallons of fuel to fly one passenger 1,000 miles.

Alternative fuels for aircraft have been studied for years, but the push got new urgency this year when jet-fuel prices hit record highs in July. Fuel is one of the largest expenses for an airline.

Some fuels such as hydrogen lack the acceleration of traditional kerosene-based jet fuel and would require planes be outfitted with massive fuel tanks.

Airlines in South Africa use a coal-based fuel blend developed by petrochemicals group Sasol that doesn’t require altering aircraft engines or other parts. Air New Zealand is testing jatropha fuel in a 747 jetliner.

Several U.S. companies are developing synthetic fuels, including American Clean Coal Fuels of Portland, Ore., Baard Energy in Vancouver, Wash., and Rentech Inc. of Los Angeles.

That’s possible even at a time of weak demand for air travel because Continental has far fewer seats to sell – about 8 percent less capacity on its flagship service, and 7.2 percent less if you include regional operations.

In a regulatory filing, the Houston-based company said advance bookings for the next six weeks on domestic flights aboard its flagship and feeder carriers are running 2 to 3 percentage points higher – as a percentage of available seats sold – than a year earlier.

Bookings on Latin American flights are also slightly ahead of last year, trans-Atlantic is flat, and Pacific is lagging, the company said.

Continental, the nation’s fourth-largest airline, said it was “comfortable” with the advance bookings.

For the fourth quarter, it appears that capacity didn’t shrink quite as quickly as traffic.

The company expects Continental planes to average filling 78 to 79 percent of its seats in the quarter. A year ago, the figure was 79.7 percent.

Guam-based flight attendant Irene Redona-Carle, a 14-year veteran and Japanese language speaker, received an invitation to Houston to meet with Larry Kellner, Continental Airlines chief executive officer and chairman, and Jeff Smisek, Continental Airlines President and Chief Operating Officer.

Continental officers drew Redona-Carle’s name and eight others from among the thousands of qualified employees entered in the Perfect Attendance Drawing.

Redona-Carle chose the Ford Escape Hybrid among the other two car choices available: a sporty Ford Mustang or a Ford Explorer.

Since 1996, Continental Airlines has awarded employees to promote perfect attendance, giving away over 100 brand new cars, jet skis, and computers. For each six-month period, employees qualify to enter a drawing for a Ford Explorer, a Ford Mustang, or a Ford Escape Hybrid. The company also has a rolling six-month award for those who had any consecutive six months of perfect attendance. The prize selections are two one-way coach or first class passes.

Continental Micronesia’s employee incentive programs include a perfect attendance and an operational success program. The perfect attendance program recognizes and rewards employees for consecutive months or years of perfect attendance. The company’s on-time bonus program rewards employees with a cash bonus plan for their teamwork and dedication when the airline meets its on-time goals for the month.

Celebrating 40 years of service in Guam and Micronesia, Continental Micronesia is headquartered in Guam and operates a Pacific hub from the A.B. Won Pat International Airport. For more company information, go to continental.com. (Continental)

Continental Airlines says it will test the biofuel on a demonstration flight, with no passengers, Jan. 7 in Houston.

One of the engines of the Boeing 737-800 will be powered with a mix of jet fuel and fuel derived from algae and jatropha seeds. Boeing is a partner in the project that Continental says will be the first using algae as a fuel.

Air New Zealand also is testing jatropha fuel in a 747 jetliner using technology developed by UOP, a Honeywell company.

No passengers will be on the flight, which the Houston airline (NYSE: CAL) said will be partially fueled by biofuel made from algae and jatropha plants. The fuel will be used in one of the Boeing Co.’s (NYSE: BA) plane’s two engines and will be a blend of traditional jet fuel and the biofuel.

Continental will become the first U.S. airline to test sustainable biofuel such as algae and jatropha in a test.

Earlier this month, Air New Zealand was supposed to test a 747-400 using biofuel derived from jatropha plants, but that test has been indefinitely delayed.