While the skyrocketing cost of fuel is forcing U.S. airlines to consider cost-cutting measures — chief among them is consolidation — Continental Airlines has used the rising price of oil as one of the reasons to back out of advanced merger talks with United Airlines.

Continental Airlines on Sunday called off talks with United Airlines, citing the other carrier’s weak financial condition and the increasing cost of jet fuel prices, which have more than doubled since the start of last year.

That reason has left many sractching their heads — how does the rising cost of oil hinder the benefits of a merger? I suppose one could argue that United, with its extensive international network, could siphon too much money as fuel costs continue to rise — probably offsetting any cost benefits a merger could accomplish.

That brings us to another question: how do airlines strike a balance between selling the deal to investors (saying they would cut costs by reducing capacity, shedding hubs etc.) and selling the deal to Washington (saying they would protect jobs, not shed hubs etc.)

Delta Air Lines, which has agreed to merge with Northwest, has obviously gone with the latter approach. In hopes of getting the deal approved by the DOJ, the carriers promised to not let the merger get in the way of job security.

Naturally, Wall Street reacted unfavorably, causing shares of both the airlines to slide in response to the news.

Now United, which has been having a parallel set of merger talks with US Airways and could announce a deal in early May, will have to decide who they want to sell the deal to.

Actually, it’s not about who you sell the deal to. It’s about who you sell it to first. 

Surely Delta’s plans to not cut capacity or shed hubs or lose jobs will look a bit different after antitrust approval, if that does come through. Because, really, what good is going through the huge headache of merging with another carrier if you aren’t going to cut costs?

Meanwhile, Continental is in advanced talks with British Airways and American Airlines about a potential alliance, with plans to seek antitrust immunity.

In sum, despite all the different routes airlines are taking, one thing is certain: skyrocketing fuel prices are prompting some major decisions in the U.S. airline industry. To merge or not to merge is the question.