Alliance Carriers Respond to DoT Threat

This is the letter that precipitated the DoT's threatened action, on which two related stories appear today. It openly calls the DoT on its planned moves, and says it's outside the Department's authority --ed.

January 21, 2003

Honorable Read Van de Water
Assistant Secretary for Aviation and International Affairs
Department of Transportation
400 Seventh Street, S.W., Room 10232
Washington, DC 20590

Re: CO/DL/NW Marketing Agreement

Dear Secretary Van de Water:

Continental Airlines, Inc., Delta Air Lines, Inc. and Northwest Airlines, Inc. (collectively the "Alliance Carriers") hereby advise the Department of Transportation (the "Department") of their intent to implement the Marketing Agreement, subject to certain commitments to which the Alliance Carriers will adhere during the pendency of any enforcement proceeding should one be initiated. (1)

These commitments are responsive to each of the six categories of concerns set forth in the Department's January 17, 2003 Notice. Modifications to the Department's language were made either for the purpose of technical clarification or to provide substantially comparable results without undermining the efficacy and proconsumer benefits of the Marketing Agreement.

The commitments that the Alliance Carriers describe herein are in addition to those set forth in our letter to the Department of Justice (the "Justice Department Letter") dated January 17, 2003. Because the Marketing Agreement is designed to maintain the competitive independence of each Alliance Carrier (such that each airline will independently establish fare levels and capacity levels in its city pair markets and "each airline [will have] an incentive to compete with its partner[s] by operating its own flights"(2), the Alliance Carriers believe that neither the conditions set forth in the Justice Department's Letter nor these additional commitments are necessary to preserve competition. Nevertheless, we have offered these commitments to be responsive to the concerns of the Department as discussed in the Notice issued on January 17, 2003 terminating review of the Marketing Agreement.

The following sets forth these commitments:(3)

1. Steering Committee: The Alliance Carriers shall not establish the Steering Committee as defined in Section 10.1 of the Marketing Agreement.(4) The Alliance Carriers shall not coordinate or agree upon pricing, scheduling (except for minor schedule adjustments to existing schedules to improve connectivity), capacity, route entry or exit, revenue/inventory management, frequent flyer terms, or upon any other matter as to which an agreement among competitors would be unlawful under 49 U.S.C. section 41712. To ensure compliance with this section, counsel shall maintain a compliance program for Alliance Carrier personnel including guidelines for the proposed activities of the alliance advising them that counsel are available to confer with them and to monitor any communications concerning the above-specified topics. Monitoring by counsel shall not confer attorney-client privilege upon such communications. The Alliance Carriers shall retain all written records of communications among themselves regarding the Marketing Agreement for a period of three years following the creation of such records.

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 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. Additionally, if the Alliance Carriers choose to co-locate additional gates at any of the hub airports(5) of any Alliance Carrier or Boston (BOS), the relocating carrier will promptly notify the Department, and if such co-location creates additional surplus gates (in a manner comparable to the situation at IAH, DTW, CVG or DFW), the Alliance Carriers agree to release, within sixty (60) days of the notice to the Department, upon the request by an airport sponsor at an airport that does not have a gate available for use on reasonable and competitive terms, any such surplus leased gates, along with related facilities (including overnight positions) but excluding gates used only for international flights, for use by a domestic non-Alliance Carrier or for common-use. Subleases to non-Alliance Carriers shall not be cancelled to release gates under this condition. 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 or charges therefor.

3. Codesharing: As referenced in the Marketing Agreement, Domestic, Canadian, and Caribbean codesharing between Delta and Continental and between Delta and Northwest shall be limited to six hundred fifty (650) flights per two-carrier combination for a total of twenty-six hundred (2,600) flights during the first year following the Closing of the Marketing Agreement. Not less than one hundred sixty three (163)(6) of each marketing carrier's new codeshare flights must be to or from airports the carrier and its regional affiliates either did not directly serve or served with no more than three daily roundtrip flights as of August 2002. An additional two hundred twenty eight (228)(7) 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.(8) Beginning one year after the Closing of the Marketing Agreement, the Alliance Carriers shall provide the Department with sixty (60) days advance notice of an increase in codesharing beyond the 650 per two-carrier combination.

4. Joint Corporate and Travel Agency Contracts: If the Alliance Carriers wish to offer three carrier 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, the Alliance Carriers shall not offer a three carrier joint bid to any corporation or travel agency that has a principal place of business or headquarters in a city listed in Exhibit A for domestic traffic originating from that city. In any three carrier 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 requested by the corporation or travel agent in writing or in a good faith response to a competitive bid.

5. CRS Displays: In the current CRS rulemaking the Department is soliciting comments on whether it should limit the number of times that codeshare services are displayed (67 FR 69396-97). The European Union CRS rules limit the number of codes displayed on a flight and CRSs operating in EU member states must comply with that limit. The Alliance Carriers shall make a good faith request in writing to each CRS that the CRS, during the pendency of the CRS rulemaking, not display an Alliance Carrier's service under more than two codes in any integrated display offered by the CRS. The requests and any responses thereto shall be submitted to the Department by the Alliance Carriers.

6. Exclusivity Provisions: After the termination of the Marketing Agreement, no Alliance Carrier shall attempt to enforce any provision of the Marketing Agreement that would restrict any other Alliance Carrier from entering into a marketing relationship with any other carrier.

Sincerely,

Rebecca G. Cox, Continental Airlines, Inc.
Scott Yohe, Delta Air Lines, Inc.
Andrea Fischer Newman, Northwest Airlines, Inc.