Government approves United, US Airway partnership

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Posted 10:34PM on Wednesday, October 2, 2002

WASHINGTON, D.C. - The government on Wednesday approved a proposal by United Airlines and US Airways to sell seats on each other's flights, coordinate schedules and offer reciprocal perks such as frequent flier miles, effective immediately. Atlanta-based Delta Air Lines said the ruling means a similar agreement involving Delta and two other airlines also is likely to win government approval. In its decision, the Transportation Department said it gave the go-ahead to the two struggling airlines because the partnership would increase competition and benefit travelers. ``We have not yet seen evidence that the agreements will unreasonably restrict either airline's incentives and ability to compete independently or would be likely to result in collusion on fares or service levels,'' the decision said. The regulators, though, said they would monitor the so-called code-sharing agreement closely and would take action against the airlines if they found the venture dampened competition. The ``code-share'' term comes from the practice of putting an airline's two-letter industry code onto another's flights. Glenn Tilton, United's chief executive, said the decision was great news for the airline. ``Our customers will enjoy expanded service options and frequent-flier benefits, as well as access to each carrier's airport clubs,'' he said. The airlines also agreed to some restrictions to limit anticompetitive behavior and promised they would compete independently on fares and service. Small air carriers oppose the agreement, fearing the bigger airlines will be difficult to compete against because of their marketing clout and dominance of airport facilities. ``I would call it a virtual merger,'' said Ed Faberman, executive director of the Air Carrier Association of America, which represents smaller airlines. ``There's no other industry that this would be permitted in.'' Smaller airlines are concerned the government will approve a proposal by Continental, Delta and Northwest to code share, giving the five airlines about 60 percent of the market, Faberman said. United and US Airways have about 20 percent, he said. Kristi Tucker, Delta spokeswoman, said the decision indicated the Transportation Department is likely to approve their proposal. ``It recognizes that marketing alliances are pro-competitive and pro-consumer,'' Tucker said. The United-US Airways alliance is intended to bring in more revenue to the financially strapped companies by combining US Airways' strength in north-south flights on the East Coast with United's strength in cross-country flights. US Airways, the nation's seventh-largest carrier, filed for bankruptcy Aug. 11 and has cut costs dramatically since then, eliminating hundreds of flights on unprofitable routes, expanded the use of smaller, cheaper regional jets and extracted wage concessions from its workers. United, the No. 2 airline, has said it will also have to seek bankruptcy protection if it can't cut its labor costs. Under the restrictions, the airlines cannot: Code share on local traffic on routes where both offer nonstop service, such as Philadelphia-Los Angeles. Code-share on nonstop flights to the same destination from Dulles International Airport or Reagan Washington National Airport, except for flights between Washington, LaGuardia Airport and Boston's Logan International Airport. Have different fares on routes served by only one airline; Fail to act independently when establishing their frequent flier programs and bidding corporate contracts.