The biggest frequent flyer alliance among U.S. airlines to date has been approved by federal regulators who initially opposed it. The U.S. Department of Transportation announced March 31 that it would terminate its review of agreements among alliance carriers Delta Air Lines, Northwest Airlines and Continental Airlines, allowing the carriers to go forward with their code-share and frequent flyer program reciprocity agreements subject to certain conditions specified by the department.
On Aug. 23, 2002, the three carriers submitted their code-sharing and frequent flyer reciprocity agreements to DOT for review as required by law. On Jan. 17, the department announced that it would not seek to block the carriers from implementing the agreement if they accepted six conditions that would address the department’s competitive concerns. On Jan. 22, the carriers notified DOT that they intended to move forward with the alliance without complying with all of the department’s conditions. That same day, DOT reaffirmed its intent to begin an enforcement proceeding to determine whether the alliance agreements were unlawful. Later, the department and the carriers opened informal consultations regarding the conditions and DOT’s concerns. The carriers did not implement the agreements while those discussions were ongoing.
On Feb. 28, the carriers resubmitted their agreement to the department. They acknowledged the department’s authority, accepted three of the department’s conditions as written, and asked that DOT accept alternative language for the other three conditions. The conditions for which the carriers submitted alternative language would require them to give up specified gates at Boston Logan and New York LaGuardia airports; limit the total number of Delta-Continental and Delta-Northwest code-share flights to 2,600 during the first year and 5,200 in the second year; and restrict joint bids to corporations and travel agents, including a prohibition against making joint bids for domestic travel originating at a corporation or travel agency’s headquarters city if the company has its principal place of business in a city where the alliance carriers’ market share exceeds 50 percent.
The three original conditions accepted by the carriers prohibit agreements among themselves on fares, routes and capacity; seek to temporarily limit to two the number of codes that can be placed on an individual flight in computer reservations system displays; and prohibit restrictions on an alliance carrier’s entering into a marketing relationship with other airlines after the agreement has been terminated.
Delta, Northwest and Continental were understandably pleased with the decision.
“With the DOT’s approval, the alliance will bring consumers lower fares, increased service levels and broader choices of destinations,” the airlines stated in a joint statement. “A similar marketing agreement between Continental and Northwest has led to as much as $1.5 billion in annual benefits to consumers. 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.”