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By Julie MacIntosh
NEW YORK, July 24 (Reuters) - US Airways Group (U) and UAL Corp.'s (UAL)
United Airlines said on Wednesday they had reached a code-share agreement,
which could boost revenues for both and possibly help US Airways avoid
potential bankruptcy.
The proposed deal, which would have to satisfy federal regulators, comes a
year after the two airlines failed to cement a $4.3 billion merger. That
proposal fell apart over antitrust concerns, which could be raised again by
the government.
Under code-share agreements, two or more airlines share route networks as
alliance partners. In this case, passengers would be able to book a US
Airways ticket on a flight operated by United or vice versa. There are also
frequent flier perks and revenue sharing between the two carriers.
"There are huge sets of new markets that this code-share brings to both
parties," said airline industry consultant Michael Boyd. United gets more
access to eastern destinations, but Boyd said the deal could be a bigger
boon for US Airways because it basically opens up the Midwest and West to
the carrier in desperate need of fresh revenue.
US Airways is on the brink financially, having posted a $248 million
second-quarter loss. It has also defaulted on some of its debt. US Airways,
based in Arlington, Virginia, hopes to convince lenders to renegotiate their
financing terms instead of forcing an involuntary bankruptcy.
Nevertheless, the deal is the second major piece of good news for the
company in the past few weeks. Earlier this month, the government gave the
carrier conditional approval for a $900 million loan guarantee to get $1
billion in financing.
US Airways has said for months that it was talking with several major
competitors about a code-share deal as a way to strengthen its operations.
"In the past, US Airways lost business to competitors because we lacked
domestic and international scope and marketing partners who can feed traffic
into our network," said David Siegel, the company's president and chief
executive.
United stressed the alliance was a good strategic fit and would boost
competition and customer choice.
This is the second attempt in as many years by the two airlines to join
forces in some way. The proposed merger between US Airways and UAL fell
apart last July over antitrust issues.
The Justice Department threatened to block the merger, saying it would hurt
competition on more than two dozen routes and mean higher fares and fewer
choices for consumers.
Antitrust concerns could become an issue again unless the airlines
structured their proposed code-share to maintain competition on the routes
they both serve, one antitrust expert said.
"The question is whether and to what extent it reduces the incentive of one
or the other to compete in one of the markets that the (Justice Department)
identified as a problem," he said.
US Airways spokesman David Castelveter said the code-share deal did not
specifically address the antitrust concerns voiced by regulators during the
merger review.
"We will implement code-sharing on a large percentage of our routes,"
Castelveter said. "Those concerns will be addressed with the (Transportation
Department) if they have them."
That agency has between 30 and 180 days to review the proposal. A DOT
spokesman said regulators had not yet received the plan and had no comment.
But United stressed that it did not see the agreement as an antitrust
matter.
"The issue here is this is a code-share agreement, not a merger," said
United spokeswoman Chris Nardella. "This agreement does not involve any
activity in which antitrust immunity would be required."
All of the major carriers have long-standing code-share agreements. This is
no different," Nardella said.
Castelveter said the airlines may not code-share on routes where they could
not provide convenient connections, or on international routes where they
were prohibited from code-sharing by regulation.
United, which lost $341 million in the second quarter, is also seeking $1.8
billion in government loan guarantees to help it recover financially.
©2002 Reuters Limited.
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