[Federal Register Volume 67, Number 195 (Tuesday, October 8, 2002)]
[Notices]
[Pages 62846-62848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25523]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary


Review Under 49 U.S.C. 41720 of United/US Airways Agreements

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Notice ending waiting period.

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SUMMARY: United Air Lines and U.S. Airways have submitted agreements to 
the Department for review under 49 U.S.C. 41720. That statute requires 
certain types of agreements between major U.S. passenger airlines to be 
submitted to the Department at least thirty days before the agreements' 
proposed effective date and allows the Department to extend the waiting 
period for any such agreements. The Department has completed its review 
of the United/US Airways agreements and has determined to end the 
waiting period for the agreements. The Department has concluded that 
the competitive issues presented by the agreements do not presently 
require further investigation. In reaching this conclusion, the 
Department is relying on the terms of the agreements, the data provided 
in response to our requests, and the two airlines' acceptance of 
restrictions imposed by the Justice Department that are intended to 
limit the possibility of anti-competitive conduct.

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

SUPPLEMENTARY INFORMATION: On July 25 United and U.S. Airways submitted 
code-share and frequent flyer program reciprocity agreements to us for 
review under 49 U.S.C. 41720. After informally reviewing the 
agreements, we find that no formal investigation of the agreements is 
warranted at this time, and we have determined that we should end the 
waiting period. The two airlines have agreed to restrictions proposed 
by the Justice Department that are intended to limit the possibility of 
anti-competitive behavior, and each airline has represented to us that 
it will continue to compete independently on fares and service levels. 
To ensure that they abide by those representations, we will monitor 
closely their conduct in implementing the agreements.
    Under 49 U.S.C. 41720, certain kinds of joint venture agreements 
among major U.S. passenger airlines must be submitted to us at least 
thirty days before their proposed implementation date. We may extend 
the waiting period by 150 days with respect to a code-sharing agreement 
and by sixty days for the other types of agreements covered by the 
advance-filing requirement. At the end of the waiting period (either 
the thirty-day period or any extended period implemented by us), the 
parties may implement their agreement.
    The statute does not require the parties to obtain our approval 
before they implement an agreement. Blocking them from implementing 
their agreement would normally require our issuance of 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 method of competition and thus a 
violation of that section. Our review of all agreements submitted under 
49 U.S.C. 41720 has been informal. It 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 consider whether we should institute a formal proceeding 
for determining whether an agreement would violate section 41712.
    While our review of the United/US Airways agreements has been 
informal, we established an opportunity for other parties to review 
redacted copies of the United/US Airways agreements and to submit 
comments due to the public interest in the agreements. 67 FR 50745 
(August 5, 2002). We have carefully considered the comments filed on 
the agreements as well as the agreements themselves and other 
information

[[Page 62847]]

provided to us by the parties. We have also consulted with the Justice 
Department, which has been reviewing the agreements under its 
responsibility to enforce the antitrust laws. Of course, our authority 
under 49 U.S.C. 41712 to prohibit unfair methods of competition is 
somewhat broader than the Justice Department's authority to enforce the 
antitrust laws. See, e.g., United Air Lines v. CAB, 766 F.2d 1107 (7th 
Cir. 1985). We extended the waiting period twice in order to conduct a 
comprehensive review of the agreements. 67 FR 54525 (August 22, 2002); 
67 FR 59328 (September 20, 2002).
    We have determined to end the waiting period for the United/US 
Airways agreements and take no action at this time to prevent the 
airlines from beginning to implement the agreements. At the present 
time, the material we have reviewed is not sufficient for us to 
conclude that an enforcement proceeding under 49 U.S.C. 41712 is 
warranted. However, we have a number of concerns about the United/US 
Airways agreements and the relationship being created by them. The two 
airlines together will have an industry market share of 23 percent, as 
measured by domestic revenue-passenger-miles (``RPMs''). In contrast, 
the largest airline, American, has a 17 percent market share. United 
has a 14 percent share, while U.S. Airways has a 9 percent share. U.S. 
Airways has also been the primary airline in the Northeast. We have a 
concern that the joint venture relationship being created by United and 
U.S. Airways may lead to lessening of competition between the two 
airlines in some markets. On the other hand, the joint venture will 
provide service benefits for a number of travellers and may increase 
competition in other markets, if United and U.S. Airways have strong 
incentives to compete with each other. While there is considerable 
overlap between the United and U.S. Airways route networks, the code-
share arrangement will enable United and U.S. Airways to offer more 
integrated connecting services in markets not now served by either 
airline, which will benefit consumers traveling in those markets.
    Legally and practically, the airlines' joint venture relationship 
will not be the equivalent of a merger, there will not be a significant 
integration of the airlines' operations, and each airline has 
represented that it will independently establish its fare levels and 
capacity levels in its city-pair markets. In addition, the fares paid 
by passengers on flights operated under the code-share arrangement will 
go to the airline operating the flight, even if the passenger bought 
the ticket under the other airline's code (the airline operating the 
flight is the operating carrier, while the other airline is the 
marketing carrier). This should give each airline an incentive to 
compete with its partner by operating its own flights, since it will 
obtain passenger revenues only when it is the operating carrier.
    After examining the United/US Airways agreements, the Justice 
Department has determined that it will not challenge those agreements 
under the antitrust laws if United and U.S. Airways accept certain 
restrictions on their joint venture. The two airlines have accepted 
those restrictions, as set forth in a letter agreement with the Justice 
Department. These restrictions primarily bar the airlines from code-
sharing on certain nonstop routes and engaging in certain pricing 
conduct that could provide a vehicle for signaling and collusion. The 
two airlines have also agreed with the Justice Department that each 
airline will independently establish the terms and conditions for its 
frequent flyer program. The terms of the parties' agreements, with 
restrictions set forth in the airlines' agreement with the Justice 
Department, appear at this time to address our immediate concerns with 
competition by United and U.S. Airways. In reaching our conclusion, we 
are expressly relying on the airlines' representations to us and on 
their strict compliance with the terms of their agreement with the 
Department of Justice.
    Under the agreement with the Justice Department, United and U.S. 
Airways will not code-share on local traffic on routes where both offer 
nonstop service, including their hub-to-hub routes (Philadelphia-Los 
Angeles, for example). They will not code-share on local traffic on 
nonstop services operated to the same endpoint from either Dulles 
International Airport or Reagan Washington National Airport, except for 
Washington, DC-LaGuardia/Boston flights. On routes served by only one 
of the two airlines, the marketing carrier's fares must be the same as 
the operating carrier's fares. On routes served by both airlines where 
both have comparable service (connecting service, for example), each 
airline's fares for flights operated by the other airline must be the 
same as the fares for its own flights or the fares established by the 
airline operating the flights. The marketing airline thus must charge 
either the same fares as the operating airline or the fares charged by 
the marketing airline for its own flights. On routes where one airline 
offers nonstop service and the other airline offers connecting service, 
the latter airline's fares for the nonstop service must be the same as 
the operating carrier's fares. Finally, United and U.S. Airways must 
continue to act independently in establishing the terms and conditions 
of their frequent flyer programs and in bidding on corporate contracts, 
although when consistent with the antitrust laws they may offer 
customers the option of a joint bid.
    As noted, we have considered the comments submitted on the 
agreements. While many of them support the United/US Airways joint 
venture, several of the comments argue that the joint venture will be 
anti-competitive and that we should institute a formal proceeding to 
investigate its competitive effects. At this time we are not persuaded 
that the joint venture or the agreements would, on their face, violate 
49 U.S.C. 41712. 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.
    Given our strong concern that the agreements not have anti-
competitive results, however, we intend to monitor closely their 
implementation by United and U.S. Airways. If we obtain evidence that 
the airlines' implementation of their joint venture is having an 
adverse impact on competition, we may take action under 49 U.S.C. 41712 
at that time. Furthermore, if United and U.S. Airways at any future 
time decide that they will no longer comply with the restrictions 
agreed upon with the Justice Department, they will have created a new 
agreement which must be submitted to us under 49 U.S.C. 41720 and which 
therefore cannot be implemented until the end of a new waiting period. 
The same will be true if they materially modify the terms of the 
agreements submitted by them on July 25. Under our established 
interpretation of 49 U.S.C. 41720, airlines that significantly modify a 
joint venture agreement must submit the modified agreement to us under 
that statute.
    We are continuing to examine the similar agreements submitted by 
Delta, Continental, and Northwest, which were filed one month after 
United and U.S. Airways submitted their agreements. 67 FR 56340 
(September 3, 2002).


[[Page 62848]]


    Issued in Washington, DC, on October 2, 2002.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 02-25523 Filed 10-7-02; 8:45 am]
BILLING CODE 4910-62-P