Three carriers say their code-sharing deal will help consumers, but consumers and government officials would rather take a pass.
At the core of the Department of Transportation's objection to agreement among
is that it would harm competition and, therefore, consumers.
Under the code-sharing agreement, Delta will be able to sell seats on Northwest or Continental flights and vice versa, allowing all three carriers to gain more customers without having to increase costs related to adding more flights and personnel. But a closer look at the situation reveals that few have any idea how the agreement will actually affect consumers until it's implemented.
Since the trio account for more than a third of the entire domestic air travel market, the DOT's fears aren't exactly unfounded. Then again, the small domestic code-share agreements currently in place seem to have benefited consumers on some level. But a marketing agreement on this scale, one that allows the third-, fourth- and fifth-largest airlines to combine their efforts, has never been attempted before.
Consumer groups feel that travelers will face higher prices and fewer options as carriers use the marketing agreement to make their operations more efficient in markets where they once competed. "With this agreement, there are 3,214 markets where two or more of the carriers have overlapping routes," said Kevin Mitchell, president of the Business Travel Coalition, a group representing business travelers that is in favor of the DOT's restrictions. "That would clearly give them the opportunity to reduce flights and cut back on service."
This is one of the major reasons why the DOT wants to force the code-sharers to fly at least 25% of all new code-share flights in markets that they didn't previously serve. In the DOT's eyes, allowing three massive carriers to share customers and make their operations more efficient could mean that customers in, say, Tulsa, Okla., have fewer flights. But for the carriers, expanding to new markets will add in costs they can't afford.
"We want to encourage service to new markets, rather than just allow them to combine their operations in existing markets," said Bill Moseley, spokesman for the DOT. "The aim is to increase competition, not reduce service and increase prices all over, which would harm consumers."
Michael Boult, COO of eCLIPSE Advisors, which advises corporations on their travel needs, said that the code-share agreement would give the code-sharers the ability to raise prices because they'd control more of the market. "Delta and Northwest aren't going to act in the best interest of travelers, they're going to act in the best interest of shareholders and maximize profits," he said. "It's pretty thin to say this will be good for travelers."
One region where an immediate impact could be felt is in the lucrative market between the major Northeastern cities and Florida's many tourist destinations. For years, the North-South route has been a source of intense competition, with carriers unable to raise prices because a single rival is willing to play the spoilsport. Northwest burned its future code-share partners last spring as the only carrier unwilling to raise prices.
But Northwest and Continental counter that their current code-sharing agreement lowered prices and increased service levels, adding that bringing Delta into the mix wouldn't hurt consumers, either. In a joint news release, Northwest and Continental said their joint marketing agreement "brought as much as $1.5 billion in annual benefits to consumers since it started in 1998." They did not outline how that figure was reached.
, which reviewed the code-share agreement and found it acceptable from an antitrust standpoint, agreed that consumers will benefit. "The alliance agreement, as conditioned, has the potential to lower fares and improve service for passengers in many markets throughout the country," said R. Hewitt Pate, acting assistant attorney general, in a statement.
While the effect on the once-a-year flyer isn't totally clear, the carriers and consumer groups agree that frequent flyers stand to benefit the most, able to rack up mileage much faster since Delta's miles will be honored at Northwest. Not only will they be able to share miles, but frequent flyers will also have more of those private airport lounges to choose from.
Yet uncertainly looms for frequent flyers as well. Because a larger pool of travelers will be sharing the same planes and the same airport lounges, some say the increased convenience might be short-lived. "Under the expanded frequent flyer programs, club access could get hammered with three different streams of customers all crowding the same clubs," said Mitchell. "Even a positive benefit could be mitigated as they get implemented."
Unfortunately, handicapping the effect such an unprecedented marketing agreement will have on travelers is impossible. But from an economic and historical perspective, the code-share agreement isn't likely to improve the situation because tickets are relatively cheap, and in order for the airline industry to survive, higher prices are necessary.
Consider that in January 1980, a 1,000-mile domestic flight at the major airlines cost $111.65, according to the Air Transport Association. Nearly 23 years later, in December 2002, that same ticket cost only $117.79 -- and that's without accounting for the effect of inflation.
"The cost today vs. 30 years ago is just unbelievable. In the late 1960s, when I got started, a cross-country, round-trip flight was $200. Look hard today and you can find similar prices," said Thomas Nulty, industry veteran and retired president of Navigant International, a corporate travel management company. "We're about to pay the price for all the good times we've been having."
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