After finding middle ground on certain contentious issues, the U.S. Department of Transportation yesterday said it is allowing Continental, Delta and Northwest airlines to implement their proposed trilateral domestic alliance. The final approval, which averted a prolonged legal battle between DOT, the U.S. Department of Justice and the three airlines, came more than seven months after the proposal first was submitted.
DOT said " alternative language" suggested by the three airlines on three conditions in question "adequately addresses competitive concerns."
Specifically, DOT and the carriers agreed to certain restrictions on joint corporate and travel agency contracts. For starters, the carriers may not offer joint bids unless the potential client requests one in writing.
"Some commenters suggest that the requirement of a written request from the corporation or travel agency may be ineffective, because the alliance carriers may put pressure on corporations and travel agencies to request a joint bid," DOT explained. "We believe that there is a significant likelihood that some corporations and travel agencies subjected to unlawful pressure will report it to us, and we encourage them to do so."
The parties also agreed that joint bids must not include corporate discounts or travel agency commissions "dependent on the satisfaction of minimum booking requirements in specific domestic origin and destination markets offered by one partner, unless the corporation or travel agency has stated in writing that it desires such an offer in order to compare it with a competitive bid from one of the other seven largest carriers or from another airline alliance." Previously, DOT's condition did not allow such contractual terms, regardless of competitive alternatives offered to the potential client.
Furthermore, to limit anticompetitive behavior, the alliance carriers must exclude local originating traffic from any joint contracts to corporations or travel agencies headquartered in a city where the three airlines account for at least 50 percent of the marketshare. Joint contracts to companies in those cities can include all other traffic originating in non-headquarters locations.
DOT and the three airlines also compromised on codeshare restrictions. The alliance partners previously accepted limits on any two-carrier codeshare combination during the first year and requirements to fly to underserved markets. DOT, however, agreed to permit additional codeshare cooperation in the second year of the alliance, totaling 5,200 flights.
Furthermore, DOT and the alliance partners agreed on certain airport facility issues that require gate divestiture at certain hubs, Boston Logan and New York LaGuardia.
The three carriers accepted without objection three other conditions imposed by DOT
(BTN, Feb. 10).
In a joint statement, Continental, Delta and Northwest said, "While Continental, Delta and Northwest will continue to operate independently and compete vigorously with each other for customers, the alliance will enable each carrier to access a greater number of customers and, in this weak economic environment, will preserve service to small communities and those communities' access to broad route networks."
Several smaller carriers objected to the trilateral alliance, citing competitive concerns. "The fact of the matter is that if these airlines went to DOJ with the intent to merge, there is no way they would let them. And this is effectively a merger," said AirTran CEO Joe Leonard in an interview last month with
Business Travel News. "At least with United-US Airways one could make the argument there is some improved network capability. You can't even make that argument laughingly that CO-DL-NW would provide better connectivity than what people already have. When you take the route maps and lay them on top of each other, you can't see any cities. They all just get blurred out."
Corporate travel managers have been divided on the CO-DL-NW trilateral pact. On the one hand, some were concerned competition would be limited, regardless of imposed conditions, and suggested that the existing Continental-Northwest alliance has not provided them with the utility and financial benefit the carriers tout. On the other hand, certain buyers see opportunity.
"We give Continental several million dollars without discount for nonstop service," said a travel manager at a West Coast-based company. "If they get together with Delta, it would help us get more of our traffic covered under discount."