Overseas connection for United?

Globalization doesn't just refer to manufacturers reaching out overseas. Airlines are facing globalization within their own industry and United Airlines believes foreign carriers have become an emerging threat.

The largest carriers by revenue are foreign carriers. And since 1999, sixteen foreign carriers have begun service to the United States. Consolidation will help get the industry closer to being able to compete against such foreign carriers, United CEO Glenn Tilton told his employees on Tuesday.

"New solutions in the regulatory and competitive environment that make it possible to participate fully in the global economy will also be required," Tilton said.

Consolidation among U.S. carriers, long touted by Tilton and others, came closer to reality Monday when Northwest and Delta announced their intention to merge. Then industry analysts eyed a potential United-Continental deal, although Tilton didn't tip his hand nor rule out foreign opportunities.

After all, a lot of different possibilities exist among potential mergers, including foreign carriers taking a stake, said Brian Nelson, airline analyst with Chicago-based Morningstar Inc.

"These possibilities are becoming more prominent because of the falling dollar overseas," Nelson said. "The price they pay today is a lot cheaper than it would have been two or three years ago."

So Lufthansa, which has a long-time relationship with United, could take a stake in it for as much as 49 percent, for example. That could help United fulfill it's mission of combining forces and saving money, analysts said.

"Anyone with a flying machine is a contender for United," said Mike Boyd, principal and airline analyst with The Boyd Group in Evergreen, Colo. "There is no other CEO, than Tilton, who is in such a frenzy to merge."

Boyd didn't see a foreign carrier that would even want to invest in an American-owned airline, considering the number in trouble. "The only thing we see is the massive growth of Chinese carriers, but that will be down the road," Boyd said.

As long as the industry faces soaring fuel prices, consolidation will be necessary, said David Swierenga, airline analyst and president of AeroEcon, an airline consulting firm in Round Rock, Texas.

"If oil remains at about $110 a barrel all this year, that means U.S. airlines will be paying $58.9 billion. That's $19 billion more than in 2007," said Swierenga. "That's really what carriers are struggling with and why they're being forced to be more efficient and to seek merger partners."

That additional $19 billion also could translate into an 18 percent jump in fares, but that's unlikely to happen, he said.

"The margins are eroding rapidly," Swierenga said. "The airlines are going to wait until their second and third quarters, which normally are their best, especially as business travel picks up after Easter. But they won't, in any way, see increases in passengers if carriers boost prices by that much."

The Delta-Northwest deal, if approved by government regulators, lays the foundation for an aggressive globalization explosion for the airline industry. After all, foreign airlines already have started to "cherry pick" the U.S. markets, said Joe Schwieterman, director of the Chaddick Institute for Metropolitan Development at DePaul University in Chicago.

"Wall Street is unwilling to invest big time until we have some stability in the U.S. market," said Schwieterman. "This Delta-Northwest deal paves the way for that."