Continental Airlines has announced a cooperation agreement with United Airlines and says it plans to withdraw from the SkyTeam airline alliance and join rival Star Alliance.

Continental’s chairman and CEO, Larry Kellner, said: "In a network business, there is significant value gained from linking with larger networks to provide truly national coverage and expanded global reach, and exploring new ways to reduce costs and improve efficiencies. As we experience some of the most challenging conditions airlines have ever faced, we look forward to the benefits of a new relationship with United and the other Star Alliance members."

The agreement with United, thrashed out over the past few weeks, will embrace codesharing on the two carriers’ complementary route networks in the US, cooperation on frequent flyer programmes, lounges, shared facilities, information technology and procurement. The partnership agreement falls short of a merger, which was ruled out a few weeks ago.

The announcement comes after all the major US airlines announced they would be slashing the number of flights and seats they offered in the US domestic market later this year. Carriers have announced plans to ground planes and lay off employees in a bid to remain profitable in the light of record oil prices.

It will take at least a year for Continental to become integrated into the alliance and to end current agreemetns with SkyTeam and its member airlines. Star Alliance chief executive, Jaan Albrecht, said: “The airline represents a perfect fit into our existing network and will allow the alliance to provide more travel options for customers especially across the US, between North America and Latin America, as well as on the North Atlantic and across the Pacific.”

Continental will also seek approval from the US authorities to enter a joint venture with Star Alliance members United, Lufthansa and Air Canada to cooperate more closely on transatlantic services. The venture would allow the airlines to “pool revenue [and] permit the carriers to compete more effectively with the proposed joint venture involving certain SkyTeam members that was recently granted antitrust immunity”.