NYTimes.com Article: 3 Airlines Approved for Sharing Agreement

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3 Airlines Approved for Sharing Agreement

April 1, 2003
By MICHELINE MAYNARD






The Transportation Department gave its approval yesterday
to a marketing partnership among Continental Airlines,
Delta Air Lines and Northwest Airlines after the carriers
proposed a compromise intended to make the arrangement more
competitive.

The agreement, which is called a code-sharing alliance,
would be the largest such arrangement in the industry.
Code-sharing alliances allow airlines to sell tickets on
one another's flights, and let passengers use the other
airlines' airport lounges. Passengers can select which
carrier's frequent- flier program to use.

The Transportation Department expressed concerns about the
agreement among the three carriers when it was proposed
last summer, warning that the linking of the airlines might
reduce competition in the industry. The airlines might
limit flights to one another's hubs in an effort to protect
their turf, thus preventing passengers from obtaining
reasonable air fares, the agency said.

That fear was based on the airlines' control of 35 percent
of industry revenue, as measured in passenger miles, and
their more than 3,000 overlapping flights.

United Airlines and US Airways have their own code-sharing
agreement, which took effect earlier this year, but the
department said it was less of a threat because the
airlines control just 23 percent of industry revenue and
had only 544 overlapping flights.

In January, the Transportation Department said it would
approve the three-way code-sharing arrangement if the
airlines would modify their plans to reduce the amount of
sharing in the initial years and forfeit certain gates. The
airlines countered that the restrictions suggested by the
department were too tight. They vowed to go ahead with the
arrangement anyway, which could have forced the
Transportation Department to sue them to block the
marketing agreement.

But the airlines recently came forward with some
alternative suggestions, which the government adopted
yesterday.

Under the modified plan, the three airlines will limit the
flights on which they share information to 2,600 in the
first year, or slightly less than 900 per pair of airlines.
The Transportation Department had originally proposed that
the carriers be allowed to share information on only about
650 per pairing. The department also agreed that the
airlines could share information on 5,200 flights in the
second year, or about 1,700 per pairing. The airlines also
agreed to give up gates at La Guardia Airport and at Logan
Airport in Boston, at the request of the airports'
governing bodies, so that other competitors could claim
them.

The three airlines have said that the plan will generate
$475 million in annual revenue, by streamlining their
operations and making it easier for passengers to choose
flights. But Kevin Mitchell, president of the Business
Travel Coalition, which represents corporate travel
departments and business travelers, said the new
arrangement might not yield that much for the carriers
given the dismal conditions the industry faces. "Any time
you make a public policy decision at the bottom of an
industry cycle, you run the risk of overlooking factors
that could be harmful over the long term," he said.

Mr. Mitchell also said that the arrangement could damage
the operations of low-fare carriers like Southwest and
JetBlue, which do not have similar deals.

"The three of these guys being able to team up and leverage
their assets is a threat" to the smaller carriers, Mr.
Mitchell said.

http://www.nytimes.com/2003/04/01/business/01CODE.html?ex=1050210415&ei=1&en=a13db81baca96c76



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