[Federal Register Volume 68, Number 44 (Thursday, March 6, 2003)]
[Notices]
[Pages 10770-10772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5450]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary


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

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Notice requesting comments.

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SUMMARY: Delta Air Lines, Northwest Airlines, and Continental Airlines 
have resubmitted their codeshare and frequent-flyer program reciprocity 
agreements to the Department for review. The three airlines originally 
submitted those agreements for review under 49 U.S.C. 41720 on August 
23, 2002. The Department determined that the agreements, if implemented 
as presented by the three airlines, could result in significant adverse 
impacts on airline competition unless the airlines agreed to six 
conditions that would limit the likelihood of competitive harm. The 
three airlines have accepted three of the six conditions and, after 
consultations with the Department, have proposed alternative language 
for the remaining three conditions. The Department is inviting 
interested persons to submit comments on whether the airlines' proposed 
alternative language adequately addresses the competitive concerns 
relating to those three conditions.
    Any comments should be submitted by March 18, 2003.

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 (``the Alliance Carriers'') submitted codeshare and 
frequent-flyer program reciprocity agreements to us for review. Their 
proposed alliance would be a comprehensive marketing arrangement that 
would involve code-sharing, frequent flyer reciprocity, and reciprocal 
access to airport lounges. Their alliance agreement would have a ten-
year term. See 68 FR 3293, 3295, January 23, 2003.
    The Alliance Carriers submitted their agreements under 49 U.S.C. 
41720, which requires certain kinds of joint venture agreements among 
major U.S. passenger airlines to be submitted to us at least thirty 
days before they can be implemented. 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 may implement their agreement. The statute does not expressly 
require the parties to obtain our approval before proceeding, and, to 
block the implementation of an agreement, we would normally institute a 
formal enforcement proceeding under 49 U.S.C. 41712 (formerly section 
411 of the Federal Aviation Act) to determine whether the agreement's 
implementation would be an unfair or deceptive practice or unfair 
method of competition that would violate that section. We interpret and 
apply section 41712 in light of the express direction of the statute 
that we consider the public policy factors set forth in 49 U.S.C. 
40101. At the conclusion of the proceeding, we could issue an order 
directing the parties to cease and desist from practices found to be 
anti-competitive.
    Following the original submission of the agreements, we invited 
interested persons to submit comments. We required the Alliance 
Carriers to make available to interested parties unredacted copies of 
their alliance agreements. 67 FR 69804, November 19, 2002. We reviewed 
the comments, material obtained by us from the three airlines, and 
other data in our possession. We met with the Alliance Carriers and 
with parties opposed to their proposed alliance. After analyzing the 
agreements and conducting an extensive informal investigation, we 
determined that the agreements, if implemented as presented by the 
three airlines, could result in significant adverse impacts on airline 
competition unless the airlines accepted six conditions developed by us 
to limit potential competitive harm. We stated that we would direct our 
Aviation Enforcement Office to institute a formal enforcement 
proceeding regarding the matter if the Alliance Carriers chose to 
implement the agreements without accepting those conditions. 68 FR 
3293, January 23, 2003 (``the January Notice'').
    As described more fully in the January Notice, we had the following 
concerns with the alliance: It would create a potential for collusion 
among the three partners; it could enable the Alliance Carriers to take 
advantage of their combined dominant market presence in a number of 
cities in ways that could force unaffiliated airlines to exit the 
markets and deter entry by other airlines; it would establish joint 
marketing efforts that could reduce competition between the partners 
and preclude effective competition from unaffiliated airlines; it could 
lead to a ``hoarding'' of airport facilities; and it could result in 
``screen clutter,'' causing the services of competing carriers to be 
downgraded in the displays offered to travel agents by computer 
reservations systems (``CRSs''). 68 FR 3295-3297. We developed six 
conditions in an attempt to address these concerns. The January Notice 
set forth the text of these conditions. 68 FR 3297-3299.
    The Department of Justice, pursuant to its separate and independent 
authority to enforce the antitrust laws, reviewed the alliance 
agreements and determined that it would not challenge the 
implementation of the agreements under the antitrust laws if the 
Alliance

[[Page 10771]]

Carriers accepted certain conditions, primarily concerning pricing and 
code-sharing. The three airlines have accepted those conditions.
    The Alliance Carriers initially stated their intent to proceed to 
implement their alliance without accepting our conditions. 
Subsequently, however, they asked us to consider alternatives for three 
of our six conditions. They are proposing alternatives to those three 
conditions after having consultations with us. On February 28 they 
resubmitted the agreements for our review with their proposed 
alternative conditions. They request that we complete our review within 
thirty days. While they acknowledge our legal authority under section 
41712 to impose conditions, they assert that they consider that neither 
these conditions nor the conditions required by the Department of 
Justice are necessary to protect competition.
    The Alliance Carriers assert that they accept, without change, our 
first, fifth, and sixth conditions, which involve the alliance's 
steering committee, CRS displays, and the agreements' exclusivity 
provision. They are requesting changes in the second, third, and fourth 
conditions, which involve airport facilities, limits on code-sharing 
flights, and joint marketing. Their requested alternative language for 
the three conditions is as follows:

    2. Airport Facilities: The Alliance Carriers agree that due to 
co-location the following gates, along with related facilities 
(including overnight positions), shall be released at the time of 
co-location to the airport sponsor upon its request for lease to 
domestic non-Alliance Carriers or for common use: (a) Four gates at 
IAH, (b) two gates at DTW, (c) five gates at CVG, and (d) two gates 
at DFW. In addition, within 90 days following the date of this 
agreement, Northwest Airlines shall release to the airport sponsor 
upon its request two gates at BOS \1\, Continental shall release to 
the airport sponsor upon its request two gates at LGA \2\, and Delta 
shall release to the airport sponsor upon request two gates at LGA 
\3\ for lease to domestic non-Alliance Carriers or for common use. 
Further, Delta Air Lines will release thirteen gates and related 
facilities at BOS upon Delta's relocation to its new Terminal A 
facility currently anticipated to be completed in the second quarter 
of 2005. Of these thirteen gates, eight gates shall be released to 
the airport sponsor and five gates shall be returned to the airline 
lessors from whom Delta subleases such gates; provided however that 
if the lessor is also an Alliance Carrier, that lessor shall release 
the gate to the airport sponsor. Additionally, if during the term of 
the Marketing Agreement the Alliance Carriers choose to co-locate 
gates at any of their other hub airports \4\ or BOS, or to further 
co-locate at any of the above hub airports where the Alliance 
Carriers have agreed to release gates, the relocating carrier will 
promptly notify the Department of such co-location and the 
relocating carrier will release to the airport sponsor upon its 
request the same number of gates and related facilities as the 
number to which it relocates following such co-location move (or, in 
the case of leased gates from another airline, the relocating 
carrier will return the gates to the lessor, and, if the lessor is 
also an Alliance Carrier, that lessor shall release the gate to the 
airport sponsor), provided the airport sponsor or airline lessor 
assumes responsibility of any existing subleases. No Alliance 
Carrier shall be required to release a leased gate (or related 
facilities) pursuant to this condition if it will be required to 
continue to pay rentals, charges or any other lease obligations 
related thereto. For the purposes of this condition ``co-locate'' 
shall mean a move of the flight operations from one Alliance 
Carrier's gate(s) to another Alliance Carrier's gate(s), or to a 
gate or gates adjacent to the latter carrier's gates.
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    \1\ Terminal E, Gates 1A and 1B with the related support space 
(including overnight positions) shown on Exhibit 1.
    \2\ Central Terminal Building, Gates A1 and B2 with the related 
support space (including overnight positions) shown on Exhibit 2.
    \3\ Marine Air Terminal, Gates 5 and 6 with the related support 
space (including overnight positions) shown on Exhibit 3.
    \4\ For the purposes of this condition, ``other hub airports'' 
are defined as Atlanta (ATL), Cleveland (CLE), Memphis (MEM), 
Minneapolis/St. Paul (MSP), Newark (EWR), and Salt Lake City (SLC).
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    3. Codesharing: Domestic, Canadian, and Caribbean codesharing 
between Delta and Continental and between Delta and Northwest shall 
be limited to 650 flights per two-carrier combination for a total of 
2,600 flights during the first year following the commencement of 
codeshare operations (``Year One''). In Year One, not less than 25% 
of each marketing carrier's new codeshare flights must be to or from 
airports that neither the carrier nor its regional affiliates 
directly served or served with no more than three daily roundtrip 
flights as of August 2002 (``Category I flights''). Also in Year 
One, an additional 35% of each marketing carrier's new codeshare 
flights must either meet the above requirement or be to or from 
small hub and non-hub airports (``Category II flights'').\5\ In the 
second year following commencement of codeshare operations (``Year 
Two''), Domestic, Canadian, and Caribbean codesharing between Delta 
and Continental and between Delta and Northwest shall be limited to 
an additional 650 flights per two-carrier combination (for an 
additional 2,600 flights for Year Two and an aggregate total of 
5,200 flights by the end of Year Two). For codeshare flights added 
in Year Two, no less than 12% of each marketing carrier's new 
codeshare flights must be Category I flights and no less than an 
additional 18% of each marketing carrier's new codeshare flights 
must be Category II flights.\6\ The Alliance Carriers shall maintain 
the above percentages with respect to 5,200 codeshare flights (in 
this case, 18% Category I flights \7\ and 27% Category II flights) 
for the duration of the Marketing Agreement. In the event the 
carriers desire to add additional Domestic, Canadian, and Caribbean 
codeshare flights after Year Two, the carriers shall provide the 
Department with at least 180 days advance notice and with such 
information as the Department shall request with respect to such 
additional codeshare services.
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    \5\ For the purposes of this condition, ``small hub'' and ``non-
hub'' airports are defined by the Airport Activity Statistics 
published by the Department of Transportation, Bureau of 
Transportation Statistics.
    \6\ If any Alliance Carrier is unable to meet the requirements 
for Category I flights due to not enough Category I flights being 
available, that carrier may substitute Category II flights for 
Category I flights, provided that the substituted Category II 
flights are over and above the separate requirement for Category II 
flights.
    \7\ This percentage may be adjusted due to the circumstances set 
forth in footnote 6.
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    4. Joint Corporate and Travel Agency Contracts: If the Alliance 
Carriers wish to offer joint bids to corporations or travel 
agencies, the corporation or travel agency shall be given the option 
of dealing with each Alliance Carrier separately or of receiving a 
joint bid from two or more of the Alliance Carriers. Only after the 
corporation or travel agency has requested a joint bid in writing 
shall such a bid be developed and submitted. In addition, following 
the date of this agreement the Alliance Carriers shall not offer a 
joint bid for domestic travel, or for a combination of domestic 
travel linked with international travel, to any corporation or 
travel agency that at the time of the bid has a principal place of 
business or headquarters in a city \8\ listed in Exhibit A, except 
that a joint bid may be submitted to such corporation or travel 
agency for travel originating from cities other than their principal 
place of business or headquarters city. The list of cities in 
Exhibit A will be revised every three years during the term of the 
Marketing Agreement beginning August 2006 to include only cities 
where all three carriers (themselves or through regional affiliates) 
operate scheduled service and their combined market share \9\ 
exceeds 50%, based on schedules published in the Official Airline 
Guide for the August of that year. In any joint bid, the Alliance 
Carriers shall not make the contractual discounted fares or 
commissions dependent on satisfaction of minimum purchase or booking 
requirements, whether based on threshold or percentage, for specific 
domestic O&D city pair markets offered by one of the Alliance 
Carriers unless the corporation or travel agent has stated in 
writing that it desires such a specific domestic O&D city-pair offer 
in order to compare it to a competitive bid from one of the largest 
seven carriers \10\ or a carrier alliance (excluding any bid 
involving an Alliance Carrier) that contains a specific

[[Page 10772]]

domestic O&D city pair offer. This condition shall not apply to 
joint bids involving only Northwest and Continental and it shall not 
require that an agreement in place with a corporation or travel 
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agent be terminated.

    \8\ For the purposes of this condition, ``city'' is defined as a 
primary metropolitan statistical area with the exception of New York 
City, which is defined as including Newark.
    \9\ For the purposes of this condition, ``market share'' is 
determined by scheduled departing seats on flights within the 50 
United States.
    \10\ For the purposes of this condition, the largest seven 
carriers will be determined by system scheduled passenger revenue 
for the latest twelve-month period as reported to the Department of 
Transportation (14 CFR Part 241, Section 24).
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    Before deciding whether the requested alternatives are adequate, we 
believe that we would benefit by obtaining the views of interested 
parties and the public. We are therefore inviting public comment on the 
Alliance Carriers' proposed alternatives. To allow us to complete our 
review promptly, we are making comments due by March 18. In light of 
our already-completed comprehensive review of the original proposal, 
and the limited scope of the additional review necessary to consider 
the three alternative conditions, we will grant the Alliance Carriers' 
request for expedited review and will decide whether their proposals 
are adequate within 30 days. We are now considering only whether the 
Alliance Carriers' three new proposals adequately address the 
competitive concerns regarding the three corresponding conditions that 
were discussed in our January Notice. Accordingly, comments should be 
directed solely to those three alternative conditions. We are not 
requesting comments on the analysis and conclusions set forth in our 
January Notice.
    If we determine that the alternative conditions adequately address 
our concerns, and the Alliance Carriers formally accept them along with 
the other three conditions developed by us, we would not institute a 
formal enforcement proceeding at this time to determine whether the 
airlines' agreements violate section 41712. We retain our statutory 
authority, however, to continue to monitor the three airlines' 
implementation of their alliance, and to take enforcement action under 
section 41712 in the future if necessary. We continue to believe, 
however, that if the alliance were implemented as originally presented 
to us, it would raise serious competitive issues. As a result, if the 
Alliance Carriers implemented the alliance without conditions 
satisfactory to us, we would begin a formal enforcement proceeding.

    Issued in Washington, DC on March 3, 2003.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 03-5450 Filed 3-4-03; 2:35 pm]
BILLING CODE 4910-62-P