This article from NYTimes.com has been sent to you by psa188@juno.com. U.S. Approves Code Sharing by Three Airlines, With Limits January 18, 2003 By EDWARD WONG WASHINGTON, Jan. 17 - The government approved a marketing partnership today among three airlines - Delta, Northwest and Continental - but only on strict conditions intended to limit anticompetitive behavior. The partnership, which is known as a code-sharing alliance and was approved by the Transportation and Justice Departments, would permit the carriers to sell seats on one another's flights and allow passengers to choose which frequent-flier program would be credited with miles flown. Passengers would also be able to use the other airlines' airport lounges. In a sharply worded statement, the Transportation Department said the partnership, which was proposed in August, raised "serious competitive issues" that could open the door for potential price and scheduling collusion. To prevent that, the department set several restrictions, including what the airlines' executives could discuss with one another, how the carriers could market themselves to corporate clients, the number of gates they could keep at airports and the types of routes the alliance could serve. The three airlines said they were studying the Transportation Department's conditions and had no further comment. Some industry experts said they would be surprised if the carriers agreed to such strict conditions, though others pointed out that the airlines did not have much to lose. Opponents of the partnership, including several low-cost airlines, praised the decision and said it was a good first step to maintaining competition. In its decision, the Transportation Department noted that the three airlines accounted for 35 percent of revenue per passenger mile in the industry and that 3,214 of their routes overlapped. This is in contrast to the market share controlled by United Airlines and US Airways, which received approval for a code-sharing alliance in October. In that case, the agency said, the two carriers accounted for 23 percent of the industry's revenue per passenger mile and had only 543 overlapping routes. The Transportation Department said it was concerned that the three-way alliance would permit the airlines to strengthen their existing markets, possibly damping competition with one another and other rivals. Northwest and Continental already have a code-share partnership, but officials said that presented less potential for anticompetitive behavior because the routes of those carriers do not overlap significantly and their combined market share is less than that of a three-way alliance that includes Delta. "Given the broad nature of the discussions that will be required to implement the alliance, we are concerned that the communications among the carriers may lead to collusion, either tacit or explicit, on such matters as fares and service levels," the Transportation Department said. To avoid that and other pitfalls, the agency imposed several conditions. Among other things, the three airlines cannot establish a working committee and cannot coordinate on matters like pricing and scheduling; must give up underused gates at their hub airports and in Boston if requested to do so by the airport operators; must limit their code-share arrangement to 650 flights in each two-carrier combination; must restrict themselves in the ways they offer joint bids to corporate clients; and must limit the use of their codes on computer reservations systems. At least a quarter of each airline's new code-share flights must be to airports that the airline did not directly serve, or to airports where the carrier had fewer than three nonstop daily flights as of August 2002. And at least 35 percent of each airline's new code-share flights have to meet that requirement or have to be to small hub or nonhub airports. "We basically applaud D.O.T.'s unprecedented effort here to review such a complex proposal," said C. A. Howlett, senior vice president for public affairs at America West Airlines, which lobbied against the code-share alliance. "We think their analysis clearly exhibited their concerns that supported ours that this proposal presented some very unique and unprecedented anticompetitive concepts and practices." But one strong proponent of code-share alliances strongly criticized the agency for the conditions. "I think these guys are having a great deal of difficulty in figuring out, one, where the industry is going and, two, what they're role is in it," said Michael E. Levine, a former airline executive and a professor at Yale Law School. "They seem to me to be trying very hard to limit the rate of change in the industry." Professor Levine, who as an executive at Northwest helped construct code-share partnerships there, said the Transportation Department was essentially trying to reregulate the industry based on what he said was a naïve view of competition. Having a couple of large code-share alliances competing against each other does not present antitrust issues, he said. In Professor Levine's view, the Transportation Department is taking a wrongheaded view of what constitutes fair competition. Using a code-share alliance advantageously against rivals is not the same as creating a monopoly, he said. Separately, a bankruptcy judge in Alexandria, Va., approved a filing today by US Airways known as a disclosure statement, essentially allowing creditors to vote on the airline's reorganization plan. Judge Stephen Mitchell set a voting deadline of March 10 and scheduled a confirmation hearing on the results for March 18 to March 20. US Airways hopes to emerge from bankruptcy before April 1. http://www.nytimes.com/2003/01/18/business/18AIR.html?ex=1043908886&ei=1&en=1357f120284055ed HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company