DOT Conditionally Okays Continental/Delta/Northwest Alliance

After reviewing for months a proposed alliance between Continental, Delta and Northwest airlines, the U.S. Department of Transportation today said it will allow the nation's largest ever codeshare and marketing pact to proceed if the carriers accept certain conditions "designed to preserve airline competition."

In coming to "a middle ground," DOT set various alliance provisions, including restrictions on the alliance partners' "ability to offer joint bids to corporate customers and travel agencies" and limits on the number of allowable codeshare flights. Putting aside the Continental-Northwest codeshares already permitted under a prior alliance arrangement, DOT limited each two-carrier combination to 650 codeshare flights.

DOT also stipulated that 60 percent of new codeshare flights generated by the alliance must go to "unserved, underserved or smaller communities." Any codeshare flight may not be listed under more than two codes in computer reservations systems "until the department completes its pending revision of the CRS rules."

Importantly, the U.S. Department of Justice earlier had ruled that the three carriers also may not code share on hub-to-hub routes.

Other restrictions require the three airlines to relinquish surplus airport gates to other competitors and maintain a high-level of gate utilization at their hub airports and in Boston. Because Continental, Delta and Northwest had not sought antitrust immunity, they also may not coordinate on fares, route entry or exit, or capacity.

Specifically regarding corporate and travel agency contracts, DOT stipulated that joint bids must be requested in writing by the customer. "In other words, any corporation can compel the alliance partners to compete with each other for that bid," said a senior DOT official during a conference call this afternoon with reporters.

Furthermore, as set forth in DOT's conditions, Continental, Delta and Northwest are barred from offering joint bids to corporations and agencies headquartered in a city where all three operate scheduled service accounting for more than 50 percent of the marketshare.

In cases where a joint bid is requested by the customer and permitted by DOT's conditions, the three carriers "shall not make the contractual discounted fares or commissions dependent on satisfaction of minimum purchase or booking requirements, whether based on threshold or percentage, for specific domestic markets or for domestic services offered by one of the alliance carriers." Bilateral Continental-Northwest joint bids are excluded from that provision.

At press time, there was no early word from the three carriers on whether DOT's complex terms were acceptable, but the senior DOT official said, "We are expecting a prompt response."

The official added that this alliance, the largest in the domestic market and with a significant level of network overlap, "required more severe conditions" than that imposed on the United/US Airways alliance.