3 airlines continue with alliance plans

All government conditions on competition not met

January 22, 2003|By BLOOMBERG NEWS

WASHINGTON - Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc. said yesterday that they would go ahead with the largest U.S. carrier alliance without meeting some government conditions aimed at promoting competition.

The airlines, which together control a third of the U.S. market, said they want to negotiate a settlement with the U.S. Department of Transportation and vowed to defend their agreement "vigorously." The department said last week that the carriers must give up some airport gates and limit the flights on which they jointly sell tickets.

Delta, the No. 3 U.S. airline, No. 4 Northwest and No. 5 Continental plan to sell seats on one another's flights, link frequent-flier programs and jointly market themselves to travel agents. They seek to start the alliance in two months in an effort to boost sales that haven't recovered from a drop after the terrorist attacks of Sept. 11, 2001.

"If I had to bet on the outcome, I would bet on a negotiated settlement," said Jon Ash, managing director at consulting firm Global Aviation Associates.

Department of Transportation spokesman Bill Mosley declined to comment on what the agency would do. The department said Friday that it would begin an enforcement proceeding to decide whether the alliance constitutes unfair competition if the carriers move ahead without accepting its conditions.

The three airlines want to settle differences in negotiations rather than before an administrative law judge or in the courts, said Scott Yohe, senior vice president of government relations for Atlanta-based Delta. The alliance might start in two months if the department doesn't try to block it, he said.

"We think we've addressed their concerns," Yohe said in an interview. "The gap may not be that great."

Both sides would rather settle than risk losing in court, Ash said. In a legal or administrative battle, Delta risks being left out of the existing Northwest-Continental alliance, and the department risks having airlines ignore their conditions in future alliance cases, he said.

The transportation and justice departments said Friday that the alliance could begin under several conditions. The carriers said they accepted all of the Justice Department conditions and all except three of the Transportation Department's major requirements.

The airlines don't want to limit to 650 the number of flights on which they can jointly sell tickets in the second through 10th years of the agreement, Yohe said, and the three carriers disagree with the department's definition of an underused airport gate.

The department's approach would force carriers to give up "a lot" more gates to competitors, he said.

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