Review under 49 U.S.C. 41720 of Delta/Northwest/Continental Agreements

AGENCY:

Office of the Secretary, Department of Transportation.

ACTION:

Notice requesting comments.

SUMMARY:

Delta Air Lines, Northwest Airlines, and Continental Airlines have submitted code-sharing and frequent-flyer program reciprocity agreements to the Department for review under 49 U.S.C. 41720. That statute requires such agreements between major U.S. passenger airlines to be submitted to the Department at least thirty days before the agreements' proposed effective date but does not require Department approval for the agreements. The statute authorizes the Department to extend the waiting period for these agreements at the end of the thirty-day period. The Department is inviting interested persons to submit comments that would assist the Department in determining whether it should extend the waiting period or take other action on the agreements.

DATES:

Any comments should be submitted by September 10, 2002.

ADDRESSES:

Comments must be filed with Randall Bennett, Director, Office of Aviation Analysis, Room 6401, U.S. Department of Transportation, 400 7th St. SW., Washington, DC 20590. Late filed comments will be considered to the extent possible. To facilitate consideration of comments, each commenter should file three copies of its comments.

FOR FURTHER INFORMATION CONTACT:

Thomas Ray, Office of the General Counsel, 400 Seventh St. SW., Washington, DC 20590, (202) 366-4731.

SUPPLEMENTARY INFORMATION:

On August 23, Delta, Northwest, and Continental submitted code-sharing and frequent-flyer program reciprocity agreements to us for review under 49 U.S.C. 41720. That statute requires certain kinds of joint venture agreements among major U.S. passenger airlines to be submitted to the Department at least thirty days before they can be implemented. This requirement currently covers code-sharing agreements, long-term wet leases involving a substantial number of aircraft, and agreements concerning frequent flyer programs. By publishing a notice in the Federal Register, we may extend the waiting period by 150 days with respect to a code-sharing agreement and by sixty days for other types of agreements. At the end of the waiting period (either the thirty-day period or any extended period established by us), the parties are free to implement their agreement. The statute does not require the parties to obtain our approval before they implement an agreement. We normally could not block two airlines from implementing an agreement unless we issued an order under 49 U.S.C. 41712 (formerly section 411 of the Federal Aviation Act) in a formal enforcement proceeding that determined that the agreement's implementation would be an unfair or deceptive practice or unfair method of competition that would violate that section.

We have informally reviewed all agreements submitted under 49 U.S.C. 41720 in earlier years. In each case, the airline parties to the agreement filed the agreement directly with the Department staff that reviews them, and we did not establish a docketed proceeding for any such agreement. In reviewing each agreement, we focused on whether it would reduce competition. As noted, we would usually base any determination that an agreement was unlawful on a finding that the agreement was unlawful under 49 U.S.C. 41712 as an unfair method of competition, that is, that the agreement violated the antitrust laws or antitrust principles. See United Air Lines v. CAB, 766 F.2d 1101 (7th Cir. 1985). Our review is analogous to the review of major mergers and acquisitions conducted by the Justice Department and the Federal Trade Commission under the Hart-Scott-Rodino Act, 15 U.S.C. 18a, since we are considering whether we should institute a formal proceeding for determining whether an agreement would violate section 41712.

In our review, we consult the Justice Department, which is responsible for enforcing the antitrust laws in the airline industry and may file suit and seek injunctive relief against the parties to an airline agreement, whether or not the agreement is subject to 49 U.S.C. 41720. We seek to avoid duplicative proceedings by this Department and the Justice Department.

Delta, Northwest, and Continental submitted their joint venture agreements one month after United and U.S. Airways submitted code-share and frequent-flyer program reciprocity agreements for review under 49 U.S.C. 41720. We have been conducting an informal review of the United/US Airways agreements. However, due to the public interest in the matter, we gave interested persons an opportunity to submit comments on the United/US Airways agreements. We thought that the views of outside parties could assist us in determining whether to extend the waiting period and whether their agreements present serious issues under section 41712. 67 FR 50745 (August 5, 2002). The comments are public. 67 FR 52770 (August 13, 2002).

We will follow the same informal review process being used for the United/US Airways agreements and provide the same opportunity for public comments. Since the statute requires us to decide within thirty days of filing whether to extend the waiting period, we request that any comments be filed by September 10. Delta, Northwest, and Continental have prepared a redacted copy of their agreements that will be available for review and copying in room PL-401 of the Nassif Building, located in the northeast corner on the Plaza level, 400 7th St. SW., Washington, DC. We are making the copy available there, even though this case is not docketed, because it is readily accessible to the public and has a copying machine for public use.

The comments will be most helpful if they focus on the key issue in our review of the agreements under 49 U.S.C. 41720: whether the three airlines' implementation of the agreements may result in a significant reduction of competition in any market and therefore constitute an unfair method of competition that would violate 49 U.S.C. 41712. Code-sharing and frequent-flyer program reciprocity agreements between major domestic airlines do not constitute a merger and, in contrast to the immunized alliances between U.S. and foreign airlines, are not normally intended to lead to a substantial integration of the partners' operations. Such agreements, however, would likely reduce competition if their terms or the resulting relationship among the airline partners would create the potential for collusion on price and service levels in markets where the airlines compete, or if the agreements and the airlines' relationship could otherwise significantly reduce competition, for example, by unreasonably restricting each airline's ability to set its own fares and service levels.