Airways cleared to begin marketing alliance

UAL, US

DOT ruling allows immediate start of revenue-boosting plan

October 03, 2002|By BLOOMBERG NEWS

WASHINGTON - UAL Corp.'s United Airlines and US Airways Group Inc. can immediately begin a marketing alliance designed to help the unprofitable carriers increase revenues, the Department of Transportation ruled yesterday.

"The alliance should increase competition in certain markets while providing service benefits for a number of travelers," the department said.

The ruling lets the carriers sell tickets for each other's flights, expanding their networks and building revenue, while remaining separate. Some small carriers have said the plan may hurt competition.

United and US Airways, the nation's No. 2 and No. 7 carriers, announced the alliance July 25. The plan is part of US Airways Chief Executive Officer David Siegel's effort to lift the carrier out of bankruptcy protection and restore profit, perhaps ultimately leading to its inclusion in United's international Star alliance to boost annual revenue by $200 million.

A similar proposed marketing alliance involving Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc. "remains under review," the department said. Those three carriers said they formed their proposed alliance to respond to the United-US Airways plan.

The two airlines agreed to some restrictions to address U.S. concerns about competition, according to the U.S. filing approving the agreement.

United and US Airways can't be partners on certain routes, such as between Philadelphia and Los Angeles, where both offer nonstop service. They also must independently set terms for frequent-flier programs.

And, they must offer the same price as the alliance partner when selling tickets for the ally's flight to prevent price signaling and collusion.

Also yesterday, US Airways won permission from a federal bankruptcy judge in Alexandria, Va., to cancel 150 aircraft leases so it can abandon unprofitable contracts and renegotiate its debts in Chapter 11.

US Airways filed for bankruptcy protection in August and has been negotiating with aircraft-leasing companies as part of an effort to cut $1.2 billion in annual costs through creditor concessions and new labor pacts.

The airline already has approval from U.S. Bankruptcy Judge Stephen Mitchell to reject leases on 67 planes, mainly older Boeing Co. aircraft. Airlines in Chapter 11 must decide within 60 days of filing for bankruptcy which planes they will abandon. The deadline for US Airways to make a decision on its plane and engine leases is Wednesday.

Under recently negotiated labor contracts, the carrier is obligated to keep a fleet of at least 245 aircraft. It now has 279.

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