Air Canada, Continental Sign Agreement, Add More Destinations

July 25, 2008 6:38 a.m. EST

Montreal, Canada (AHN) - In an effort to cut costs and improve profitability, Air Canada, Canada's largest air carrier, announced on Thursday it signed an agreement with Continental Airlines, the fourth largest U.S. airline.

Air Canada signed in principle a pact with Continental Airlines to provide passengers with a wider network of destinations, frequent flyer benefits and lounge access. The arrangement complements the air carrier's tie-up with United Airlines, a fellow Star Alliance partner whose routes are not the same as Continental's.

Continental would terminate its partnership with Sky Team and join Star Alliance, the U.S. air carrier said in June.

Ben Smith, Air Canada chief commercial officer, told the Canadian Press, "You put the three networks together and it's probably the best in North America so it gives out customer base the best network that you can get in North America, by far."

The partnership provides Canadian travelers access to more eastern United States destinations using Continental's hubs in New Jersey and Cleveland, and enhances access to the southern U.S., Mexico and Central America via the Continental's Houston center.

Although Air Canada will not reduce its direct flights to the U.S., it announced plans to downsize its capacity by 7 percent and lay off 2,000 out of 28,000 workers.

However, the benefits of the agreement would probably not be felt for a year, because Continental has nine months before it can end its membership with Sky Team, after Delta merges with Northwest.

Cam Doerksen, a Versant Partners analyst, told the Canadian press, "Continental has an extensive network in Central America and other parts of the U.S., where perhaps United doesn't have the same type of coverage, so I think it opens more opportunities for Canadian travelers to fly to more destinations."