One approach - use Dissolve (Data Management). There is a Python code example in the tool help (look up Dissolve in your version of ArcGIS in case there are any differences in Python over time).
Chris Donohue, GISP
First Dave Matthews, now Jerry Garcia, what distinguished guests today.
Anyways, I don't think that combining a large number of small features into a small number of large features will do you much in terms of performance for drawing your features. The features resulting geometry would end up being just as dense as it already is, just in a smaller number of features. If you did want to condense down the number of features in your table, you could always do a Dissolve based on the elevation value of the contour lines, so you only have records for each individual elevation value. However, the tool does warn about making datasets that are too large and complex which can cause processing issue.
If you are mainly using the contours for display on a map, you could probably use the Simplify Lines Tool from the Cartography Toolbox to reduce the size of your feature while maintaining a degree of spatial accuracy(for contours I would probably use the Bend Simplify Algorithm). This would create a new feature that you could have for map purposes while maintaining a full accuracy contour dataset.
Any more details about what you are wishing to do would be useful.
Some additional random info...
Years ago, combining features into less features would help with performance. Maybe not so much these days... not sure. I'm just trying a couple things.
Contours are for display only. These are two foot for the whole US. For the most part, being processed per county and stored in a FGDB per county.
Served as one contour map service. The MXD has a lot of feature classes; one per county. This may present a problem at some point...?...?
I have one county whereby the clip keeps crashing. I'm trying to clip off contours outside the county boundary whereby the DEMs overlapped across county lines somewhat. I thought maybe combining the features would also help with the clip operation.