Ticketing pact set by Delta, Northwest, Continental

But deal is subject to nods from pilots, DOT, others

August 24, 2002|By BLOOMBERG NEWS

HOUSTON - Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc. agreed yesterday to sell tickets on one another's flights, responding to a similar alliance proposed by two rivals last month.

The agreement by the third-, fourth- and fifth-largest U.S. airlines is subject to approval by the U.S. Department of Transportation, pilots unions and partners in similar global alliances. Northwest and Continental also may join Delta's SkyTeam international alliance, the companies said.

UAL Corp.'s United Airlines and US Airways Group Inc. announced July 25 a similar joint-sales agreement. U.S. airlines are looking for ways to boost revenue and reduce costs after record losses following the Sept. 11 terrorist attacks. An alliance involving three major carriers may be seen as giving them too much competitive power, analysts said. "The proposed alliance faces significant hurdles," said Jamie Baker, a J.P. Morgan Chase & Co. analyst. "In the event of a United-US Airways rejection [by U.S. regulators], a combination by the third-, fourth- and fifth-largest airlines is unlikely."

The Department of Transportation has extended its review of the United-US Airways plan by 30 days. Once the Delta- Northwest-Continental plan is filed, the department will conduct a 30-day informal review, said DOT spokesman Bill Mosley.

Such agreements let airlines extend route systems at less cost than an expansion or merger. They let carriers sell tickets on one another's flights, without coordinating schedules or prices. The three airlines' agreement also links frequent-flier programs.

Their alliance is a "serious competitive response" that might eliminate much of the revenue gain United and US Airways seek from their own accord, said Jon Ash, managing director at consulting firm Global Aviation Associates.

The alliance could add about $200 million in annual operating income for Delta, about the amount that Continental will receive this year from its alliance with Northwest, Merrill Lynch analyst Michael Linenberg said in a report.

Delta would benefit from the partnership by funneling passengers to Northwest and Continental flights in the Midwest and Northwestern United States, where Delta's system is weaker, analysts said.

Northwest would gain as Delta's routes in the East and Southeast feed traffic into its network in Asia.

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