CO, Delta, Northwest Challenge DOT On Alliance Terms

Continental, Delta and Northwest airlines today responded to harsh conditions imposed by the U.S. Department of Transportation on their proposed marketing alliance, setting forth less onerous commitments and a vow to defend their pact against any enforcement action.

The response seemingly sets up a confrontation between the three airlines and DOT, which on Friday suggested its conditions for the three-way alliance no longer were negotiable after a six-month review. "We have decided to move forward with implementation of our marketing agreement at the earliest possible date," the carriers said in a joint statement. "However, some of DOT's conditions are unacceptable, and we will not agree to them."

Specifically, the airlines rejected DOT's stipulation that joint corporate and travel agency contracts, where allowable, must not include domestic discounts and commissions dependent on minimum booking volume or share requirements. "The proposed restrictions on joint contracts with corporate customers is unacceptable, as it will arbitrarily and severely deprive corporate customers and travel agents of the advantages of the airlines' expanded codeshare services," the three airlines said. "It would also arbitrarily and unfairly leave the airlines unable to compete effectively for corporate customer and travel agency business."

Instead, the airlines committed to "restrict the content of joint bids unless otherwise requested by the company or in a good faith response to a competitive bid." They also agreed, as stipulated by DOT, to offer joint bids only to those corporations and agencies that request them and only in markets in which they do not control in aggregate a majority of the marketshare.

The airlines also termed unacceptable DOT's codesharing restrictions of 650 flights per two-carrier combination. "While the airlines are willing to adhere to numeric limitations on the scope of code sharing during the first year phase-in of service, the potentially permanent limitation contemplated by DOT is unacceptable."

Furthermore, the carriers objected to DOT's mandate that underutilized gates be surrendered to airport authorities and instead agreed only to hand over a specific number of gates at specific airports as they become available through relocation.

Continental, Delta and Northwest noted they recently reached an agreement with the U.S. Department of Justice--"the government agency with the principal responsibility and expertise in enforcement of U.S. competition laws"--requiring certain agreed-upon conditions. "Our marketing agreement preserves competition among Continental, Delta and Northwest, since each carrier will continue to independently price, schedule and make all other competitive determinations." They also cited consumer benefits realized from the existing Continental-Northwest bilateral and DOT's recent approval of the "virtually identical" United-US Airways alliance "without any conditions imposed."

"Now that DOT's regulatory review period has terminated, Continental, Delta and Northwest intend to move forward with implementation of their alliance, subject to the commitments outlined above," the airlines concluded. "Should DOT bring an enforcement action regarding the marketing agreement, the carriers intend to defend their marketing agreement vigorously while continuing to implement it, in order to protect the pro-competitive, pro-consumer benefits identified by the Justice Department and prevent DOT from placing Continental, Delta and Northwest at a competitive disadvantage during a time of unprecedented crisis in the airline industry."