Three of the nation's largest airlines have inked a deal that, in essence, would allow them to work in harmony against the competition. Delta ( DAL) announced Friday that it plans to join the code-sharing arrangement currently operated by Northwest ( NWAC) and Continental ( CAL). The deal, requiring governmental approval, would allow the three airlines to sell seats and accept frequent flyer miles for one another.
The alliance comes as the nation's big airlines appear increasingly vulnerable to a weakening economy and increasing low-cost competition from carriers such as Southwest ( LUV), analysts say. Many analysts and investors suspect that at least a few of the major carriers will be forced into bankruptcy by the industry's declining economics. The participating airlines insisted that they will continue to compete amongst themselves. But the proposed deal, they said, will level a playing field currently tilted in favor of US Airways and UAL's ( UAL) United, which are seeking a code-sharing agreement of their own. Of course, the airline industry being what it is, a tilted field is largely in the eye of the beholder. US Airways, after all, recently filed for Chapter 11 bankruptcy protection, and United may follow in a matter of weeks, the company has warned. Both airlines could enjoy substantial cost reductions through the restructuring process. "This proposed agreement represents an important part of our plan to strengthen our competitive position in today's extraordinarily difficult operating environment," said Delta Chief Executive Leo Mullin. Darryl Jenkins, director of the Aviation Institute at George Washington University, applauded the proposal as a sound one. "Certainly, this is preferable to a merger," Jenkins said. "It allows the airlines to increase revenues without increasing costs. "That's the big deal with these alliances."