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Airlines' code-sharing plan challenged

Delta, Northwest, Continental agree to swap bookings

Delta, Northwest, Continental agree to swap bookings

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Critics say U.S. airlines that agree to book passengers on one another's flights, or codeshare, are stifling competition. CNNfn's Bill Tucker reports (January 22)
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WASHINGTON (CNN) -- The Department of Transportation said Tuesday it will file an unfair methods of competition complaint against three airlines that have agreed to book passengers on one another's flights.

The code-sharing agreement was reached by Delta Air Lines, Northwest Airlines and Continental Airlines, respectively the nation's third-, fourth- and fifth-largest carriers.

The department's decision followed the airlines' announcement that they intend to proceed with the plan, announced in August, without satisfying concerns the department had raised.

"DOT will not abandon our statutory responsibility to consumers nor ignore the clear intent of Congress, which has specifically directed the DOT to review such matters for anti-competitive effects," spokesman Chet Lunner said.

He said the department intends to preserve competition among airlines.

Under a code-sharing agreement, airlines can sell passengers tickets on each others' flights. Such pacts help carriers increase revenue by effectively enlarging their network of flights and destinations. When the three airlines announced the move last summer, they said it would help them stay competitive with US Airways and United Airlines, which had previously announced a code-sharing agreement.

Code-sharing is one way airlines can continue to attract customers even as they cut their networks and capacity in a bid to deal with decreased demand for flying. Business travelers, a lucrative market but one that has cut back flying even more than leisure travelers, still demand the largest possible selection of flights and available cities from their air carriers.

Delta has code-sharing agreements with Alitalia, Aeromexico, Air France and Korean Air. Northwest and Continental's alliance includes KLM Royal Dutch Airlines.

Code-sharing agreements require approval of regulators, but because code-sharing partners aren't necessarily allowed to discuss pricing and schedule plans with one another, the agreements are commonly approved.

In a joint statement issued Tuesday, Delta, Northwest and Continental said they decided to move forward with the marketing plan despite the DOT's objections.

'Some of DOT's conditions are unacceptable'

The three airlines objected to the department's conditions that they surrender under-utilized gates, limit the number of code-sharing flights during the first year of the agreement and refrain from making joint bids on lucrative corporate or travel agency contracts.

"We were prepared to accept most of the additional conditions that DOT sought to impose on us," the statement said. "However, some of DOT's conditions are unacceptable, and we will not agree to them."

An existing partnership between Continental and Northwest has lowered prices and increased service since it began in 1998, the airlines' statement said, and the proposed code-sharing agreement among the three airlines will have similar effects.

The Department of Justice has said the agreement could lower fares and improve service for passengers in many markets. The airlines said the Justice Department concluded that no other conditions were necessary to protect competition.

Lunner, however, said the airlines incorrectly argue that the department has no right to object to parts of their proposed agreement.

The Transportation Department plans to file a complaint with an administrative law judge, who will hold a hearing on the matter. The judge will then recommend a decision, which is subject to final review by the DOT. If the airlines disagree with the final decision, they could file with the U.S. Court of Appeals. 

Major airlines have made deep cuts in their schedules in the wake of the September 11, 2001 terrorist attacks, which decreased the demand for air travel. But those cuts have not been enough to return the carriers to profitability, leading to further cuts and the announcement from United last month that it was filing for bankruptcy protection.

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