The alliance between Northwest and Continental airlines remains under review at both DOJ and DOT, which has requested additional information from each of the six airlines on the frequent flyer arrangements with its respective alliance partner. Northwest and Continental Have Begun to Implement Their Alliance Agreement

On November 20, 1998, Northwest and Continental announced that Northwest had completed the acquisition of 8.7 million shares of Continental’s stock, which it then deposited in a voting trust. According to the airlines, under the new terms of the agreement between them, Northwest will acquire less than a majority of the voting control of Continental, forgo its right to place someone on Continental’s board of directors, and forgo code-sharing with Continental in certain hub-to-hub domestic markets. airlines.) American-US Airways Began Implementing Their Alliance in August

Also in April 1998, 3 months after Northwest and Continental announced their alliance, American Airlines and US Airways announced that they had agreed on a limited marketing relationship involving their frequent flyer programs and club facilities. The airlines began implementing the frequent flyer agreement in August 1998. Our limited analysis of flight frequencies suggests that the alliance could result in new, possibly improved, route options. Both alliances will provide benefits to members of each airline’s frequent flyer program by offering new destinations to which members can fly. The two airlines have also agreed to allow reciprocal access to all domestic and international club facilities. Although cooperating, they are conducting separate reviews because they have different statutory authorities, responsibilities, and remedies. DOJ said in its complaint that Northwest’s gaining voting control would lessen competition in interstate trade and commerce and unreasonably restrain trade and that the transaction would also likely create “interlocking directors” on the boards of directors of both airlines, with certain individuals sitting on both boards. On October 23, 1998, DOJ filed a civil antitrust action to prevent Northwest from acquiring or holding a majority of the Continental’s voting stock. DOT also imposed waiting periods on the implementation of the Northwest-Continental alliance’s frequent flyer and code-sharing agreements but said on December 4, 1998, that the airlines could proceed with their reciprocal frequent flyer program, which had been modified somewhat at DOT’s request. Specifically, our objectives were to (1) determine the status of each of the alliances; (2) examine, for each alliance individually, the potential beneficial and harmful effects on consumers; and (3) examine the authority of the departments of Justice (DOJ) and Transportation (DOT) to review these alliances and the status of these reviews. Our analysis showed that a code-sharing alliance between United and Delta would serve fewer new airport pairs than the airlines estimated. We found that such an alliance could create on-line single-connection service in 166 markets that served 2.0 million passengers in 1997. IV.1). These 60 markets served 5.2 million passengers in 1997. In addition, the number of markets dominated by the alliances would increase by about 10 percent, causing over two-thirds of U.S. travelers to fly in markets dominated by a single airline. 5, 1998).
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on: (1) the status of the proposed alliances to be formed by the six largest U.S. airlines; (2) the potential beneficial and harmful effects on consumers; and (3) the authority of the Department of Justice (DOJ) and the Department of Transportation (DOT) to review these alliances and the status of their reviews.

What GAO Found

GAO noted that: (1) all six airlines have begun implementing various aspects of their agreements; (2) Northwest Airlines completed its acquisition of equity in Continental Airlines, and the two airlines began implementing their reciprocal frequent flyer programs; (3) since GAO testified in June 1998, however, Northwest and Continental have revised their agreement; (4) under the terms of the revised agreement, Northwest altered its equity investment in Continental, agreed to forgo its right to place someone on Continental's Board of Directors, and agreed to forgo code-sharing with Continental in certain domestic markets; (5) even though Northwest and Continental have implemented their agreement, it remains under review at both DOJ and DOT; (6) the alliance between United Airlines and Delta Air Lines was originally to include code-sharing, but it has been scaled back to an arrangement involving reciprocal frequent flyer programs and access to airport lounges; (7) this arrangement, which the airlines began implementing in September 1998, is much the same as the one American Airlines and US Airways proposed and began implementing in August 1998; (8) GAO analysis of Northwest and Continental's proposed alliance showed that the alliance could result in new, possibly improved, route options, and the alliance's extended frequent flyer program may benefit members of each airline's program; (9) GAO also found that this alliance will create some new markets that are not already served by other airlines; (10) however, GAO's analysis indicated fewer new markets than the alliance partners estimated, and it showed that these new markets will serve relatively few passengers; (11) GAO's analysis indicates that if Northwest and Continental do not act independently, competition could decline in 63 markets that served 2 million passengers in 1997, and the two airlines could also increase by 5 percent in the number of markets that they dominate; (12) DOJ and DOT are separately reviewing the three alliances under different statutory authorities and have different remedies available to them; (13) on October 23, 1998, DOJ filed a civil antitrust action to prevent Northwest from acquiring or holding a majority of Continental's voting stock; (14) DOJ said in its complaint that Northwest's gaining control would lessen competition in interstate trade and commerce and unreasonably restrain trade; and (15) Congress recently authorized DOT to impose waiting periods before certain joint venture arrangements involving major airlines.