Continental awaits decision on partnership with Delta

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Aug 27, 2002
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Continental awaits decision on partnership with Delta
By BILL HENSEL JR.
Copyright 2002 Houston Chronicle
An alliance that would partner Continental Airlines and Delta Air Lines, which initially seemed to face some objections, may have received a boost this week after regulators endorsed an alliance between two other airlines.
However, the proposed alliance involving Continental and Delta is viewed as more complex than the one involving United and US Airways, which was endorsed by the Transportation Department. Continental and Delta have considerably more market overlap, and therefore more potential for antitrust problems.
Houston-based Continental already has an alliance with Northwest Airlines, but the addition of Delta could dramatically increase opportunities for travelers and frequent fliers -- and the bottom line for all three carriers.
Blaylock & Partners airline analyst Ray Neidl noted that while Continental and Northwest fit together nicely, Delta and Continental directly compete in some regions.
For example, they both have large operations in New York, and they both have hubs in Ohio, he said. In Texas, there could also be a problem because Continental has a hub in Houston, and Delta has a hub in Dallas.
If it is approved, it will have a lot of disclaimers to it, Neidl said.
The alliance between United and US Airways, which filed for bankruptcy protection this summer, was characterized as necessary by some analysts, particularly since US Airways doesn''t belong to any kind of worldwide partnering system like the other major airlines do.
The partnership also is important to United, because it allows the airline to cover an area of the country not covered previously.
United has said it could follow US Airways into bankruptcy court if it can''t reach an agreement with employees to cut labor costs.
The Transportation Department indicated in its decision allowing the alliance that it would increase competition and would benefit the traveling public.
All such marketing alliances allow airlines to significantly widen the scope of services they offer, chiefly by being able to sell seats on one another''s planes to more passengers.
The marketing alliances, otherwise known as code-sharing, allow travelers to earn frequent-flier miles on flights with the partnering carriers and to use the club facilities offered by each.
Continental has enjoyed a mutually beneficial alliance with Northwest for the past several years, spokesman Rahsaan Johnson said. That partnership has offered considerable benefits to consumers while also preserving competition, he noted.
We''re confident our expanded alliance with Delta will likewise be approved, Johnson said.
Continental gained more than $140 million in pretax revenues through its marketing alliance with Northwest last year, the company said.
Delta, Northwest and Continental are ranked as the third-, fourth- and fifth-largest airlines in the United States, respectively. United is No. 2 and US Airways is No. 7.
Delta spokeswoman Kristi Tucker said the Atlanta-based carrier also is confident the proposed alliance with Continental and Northwest will be approved.
That decision recognizes that marketing alliances such as the ones we proposed are pro-competitive and pro-consumer, Tucker said.
Some analysts have felt that if one of the alliances was approved, the other would be, also. The department took slightly more than two months to approve the US Airways-United alliance, which was announced in late July.
The proposal involving Continental, Northwest and Delta was filed in August.
While some might describe the code-sharing partnerships as a type of poor man''s acquisition, any aid to the cash-strapped airline industry at this point likely is welcome. Because of changing business travel trends, most airlines were losing money before last year''s terror attacks, and the industry''s woes were further exacerabated following the incident.
All the major airlines have announced plans to reduce capacity and cut costs, and they have tightened regulations involving things such as overweight and oversized baggage in an attempt to collect additional revenue.
They also are hopeful the alliances will result in added revenue. Marketing alliances are wholly different from actual mergers in that the carriers remain competitors. That point was driven home Thursday when Northwest announced a fare sale and Continental quickly followed suit.
Northwest put its leisure fares on sale at up to 41 percent off. The sale provides savings of up to 41 percent for two or three people traveling together and up to 28 percent off leisure fares for individual travelers in all markets served by Northwest and its Airlink regional partners within the United States and between the United States and Canada.
Continental matched the fares later Thursday, Johnson said.
Northwest''s fare announcement came only one day after it announced it would slash its flight attendants roster by 1,600 to meet slow travel demand. Northwest asked flight attendants to take voluntary leaves to reduce their numbers to match its forecast level of flying for this year and next.
If the payroll is not reduced by 1,600 people, Northwest said it would be forced to furlough the number needed to reach that level.
 
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