DOT, DOJ Allow UA-US Airways Alliance

The U.S. Department of Transportation yesterday ended an informal investigation into the proposed codeshare and marketing alliance between United Airlines and US Airways. The carriers, which must adhere to certain restrictions imposed by the U.S. Department of Justice, immediately can start certain joint activities.

The agreement is crucial for both carriers. For US Airways, it bolsters the case for finalizing a $900 million loan guarantee from the Air Transportation Stabilization Board and strengthens its business plan as it progresses through bankruptcy reorganization. For United, teetering on the edge of its own bankruptcy, the codeshare pact should generate incremental revenue vital to its survival and possibly generate new or renewed corporate business by offering clients a larger network, particularly on the East Coast.

"The competitive issues presented by the agreements do not presently require further investigation," DOT said in a statement.

However, DOJ included conditions meant to limit anticompetitive conduct, such as codeshare carve-outs that exclude from the agreement hub-to-hub flying and other routes on which both offer nonstop service. United operates hubs at Chicago O'Hare, Denver International, Los Angeles International and Washington Dulles airports. US Airways' hubs are in Charlotte, N.C., Philadelphia and Pittsburgh.

DOT also noted that the operating carrier of a codeshare flight will collect the passenger fare rather than the marketing carrier. "This should give each airline an incentive to compete with its partner by operating its own flights," according to the DOT statement.

To address concerns related specifically to Washington-area dominance, the carriers also may not code share on local traffic on nonstop service to the same end-point from either Dulles or Reagan Washington National, except existing service between Washington, D.C., and both Boston Logan and New York LaGuardia. Also, for routes served by only one of the two, the marketing carrier must offer fares equal to those offered by the operating carrier.

DOJ stipulated United and US Airways must act independently when bidding on corporate contracts, "although when consistent with the antitrust laws, they may offer customers the option of a joint bid."

DOT noted "a number of concerns" about the alliance, citing that the combined domestic marketshare is 23 percent. "The joint venture relationship being created by United and US Airways may lead to lessening of competition between the two airlines in some markets," DOT said. "On the other hand, the joint venture will provide service benefits for a number of travelers and may increase competition in other markets."

Both airlines agreed to continue competing with each other and independently to set pricing and service levels. DOT nevertheless said it closely will monitor implementation of the agreement.

On Oct. 14, the new partners will begin airport club reciprocity, enabling a member of one of the carrier's clubs to use the other's on the day of ticketed departure. Frequent flyer reciprocity will follow in the coming months. The first United-US Airways codeshare flights are planned for the first quarter of 2003.

Meanwhile, DOT continues an informal review of the proposed Continental-Delta-Northwest domestic codeshare agreement crafted as a response to United-US Airways.