Another Airline 'Alliance' Formed

Delta Air Lines, the third biggest airline in the United States, plans to join Continental and Northwest in a broad new partnership aimed at protecting revenue from a proposed rival alliance.

The plan announced Friday expands an existing partnership between No. 4 carrier Northwest and No. 5 Continental by bringing Atlanta-based Delta into the mix.

The airlines plan to sell seats on each other's flights and coordinate schedules and frequent-flier benefits under a "code-share" agreement. The term comes from the practice of putting an airline's two-letter industry code onto another's flights.

In effect, each airline in such a partnership can give its own designation and sell seats on a single flight operated by one of the partners.

The proposal, which still must be approved by federal regulators and pilots' unions, is not a merger. All three airlines remain competitors in pricing and scheduling.

"When fully implemented, this effort will allow our customers to travel more conveniently to more destinations around the world," said Leo F. Mullin, Delta's chairman and chief executive.

David Stempler, president of the Air Travelers' Association, agrees.

"It gives more destinations and a wider reach for the airlines and it provides better advantages for those members of their frequent flyer programs," he told CBS Radio News.

The deal gives the three carriers a more level playing field against a similar plan under review between United Airlines and US Airways, reports CBS MarketWatch's Jennifer Waters. On Thursday, Transportation extended its review of that deal by 30 days, claiming it needed more time to investigate the competitive ramifications.

Mullin has said the United-US Airways alliance would pose a direct assault on Delta's revenue because of its heavy concentration on the East Coast, where US Airways' flights are concentrated.

Stempler would like to see more deals like these.

"Right now, we've got a couple of groups who are working together but as they get consolidated, we need to have equal marketing power among different groups so that they can equally compete against each other," he said.

Stempler doesn't think this means lower prices, but it very well could mean steady prices in tough times.

"It creates an opportunity to at least hold the pricing where it is," he said. "The airlines have been losing so much money that they need to do a little consolidation to try to protection their situation and give them a little more powerful against the discount carriers."

Delta, Houston-based Continental and Northwest, based in Eagan, Minnesota, hope to have the agreement in place by spring 2003.

The new partnership would be implemented first in the United States, Canada and the Caribbean, and then later on routes in Europe, Asia and Latin America, Delta announced.

The agreement also provides for discussions to bring Continental and Northwest into the SkyTeam alliance, a code-sharing arrangement that already includes Delta, Aeromexico, Alitalia, Air France, CSA Czech Airlines and Korean Air.

A code-share agreement involving Delta and Northwest also would require the approval of their pilots, who have contract language detailing how much flying can be done with "permitted aircraft."

The share prices all three airlines fell on the news, as did other airline stocks.