United States General Accounting Office

GAO Report to Congressional Requesters

January 1999 AVIATION

COMPETITION

Effects on Consumers

From Domestic Airline

Alliances Vary

GAO/RCED-99-37

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-280704 

January 15, 1999

The Honorable John McCain

Chairman, Committee on Commerce,

 Science, and Transportation

United States Senate

The Honorable Slade Gorton

Chairman, Subcommittee on Aviation

Committee on Commerce, Science,

 and Transportation

United States Senate

Early in 1998, the six largest U.S. airlines, which account for nearly

70 percent of domestic airline traffic, announced their intentions to form

three alliances, in which the partners—Northwest and Continental, Delta

and United, and American and US Airways—would cooperate on some

aspects of their business (see app. I for information on the airlines’ market

shares). These alliances vary from a limited marketing arrangement, such

as reciprocal frequent flyer programs, to more complex agreements, such

as those involving “code-sharing”1

 or one partner’s ownership of an equity

share in the other partner’s business. The airlines say that these alliances

will benefit consumers through expanded route networks and combined

frequent flyer programs. Others, however, say that the alliances will

decrease competition, ultimately reducing passengers’ choices and

increasing fares. Concerned over the potential anticompetitive effects of

the alliances, the Department of Transportation is reviewing them, and the

Department of Justice filed suit in October 1998 to prevent Northwest

from acquiring voting control of Continental. Justice did not, however,

request a temporary injunction precluding the transfer of voting control.

At your request, we have been examining the implications of these

alliances. On June 4, 1998, we offered the preliminary results of our

analysis in testimony before the Subcommittee on Aviation, Senate

1

Code-sharing allows an airline to sell seats on its partner’s plane as if they were its own, enabling the

airline to expand its route network without adding any planes. For example, if Northwest and

Continental have a code-sharing agreement and Northwest flies from Minneapolis to Duluth (and

Continental does not), and Continental flies from Amarillo through Houston to Minneapolis (and

Northwest does not), then both airlines could sell tickets from Amarillo to Duluth as their own flights,

and each computer reservation system would indicate that both airlines provide seamless (“on-line”)

service to these cities. Thus, both Continental and Northwest would increase their route networks

without adding any new flights. The computer reservation system could also show this flight a third

time as a connecting flight with segments served by both airlines.

Page 1 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Committee on Commerce, Science, and Transportation.2 This report

expands on that testimony and offers more information about the

implications of the alliances. As agreed with your offices, the report

(1) describes the status of each of the alliances, (2) examines, for each

alliance, the potential beneficial and harmful effects on consumers, and

(3) examines the authority of the departments of Justice and

Transportation to review these alliances and the status of their reviews.

Results in Brief All six airlines have begun implementing various aspects of their

agreements. Northwest completed its acquisition of equity in Continental,

and the two airlines began implementing their reciprocal frequent flyer

programs. Since we testified in June 1998, however, Northwest and

Continental have revised their agreement. 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. Even though Northwest and Continental have implemented their

agreement, it remains under review at both Justice and Transportation.

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.

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.

The alliances may have both beneficial and harmful effects on consumers.

And because they differ in scope, their possible effects vary. Officials from

Northwest and Continental said that their alliance will benefit consumers

through expanded route networks, more frequency options (that is, more

flights on the same routes), improved connections, and enhanced frequent

flyer programs. Our analysis 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. We also

found that this alliance will create some “new” markets that are not

already served by other airlines. However, our analysis indicated fewer

new markets than the alliance partners estimated, and it showed that these

new markets will serve relatively few passengers. On the other hand,

consumers would be harmed if competition is reduced. But it is difficult to

determine whether the partners in the alliance will continue to compete or

2

Aviation Competition: Proposed Domestic Alliances Raise Serious Issues (GAO/T-RCED-98-215,

June 4, 1998).

Page 2 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

whether the alliance will encourage them to act in a manner that may

reduce competition. Airline officials have said that the partners will

continue to compete. However, industry experts have raised concerns that

competition will likely decline over time as firms recognize their

interdependence and maintain prices above the competitive level. Our

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 the number of markets that they dominate. According to

industry experts, airlines that achieve dominant market positions can

drive out competitors with smaller shares and eventually raise fares. In

addition, we recently reported that certain airline marketing practices,

such as frequent flyer programs—a feature common to all of the

alliances—can make competitive entry more difficult for other airlines,

especially in markets where one airline has a substantial share of the

market, thus possibly limiting the benefits of deregulation in the airline

industry. However, we have not been able to quantify the effects on

competition that such practices would exert.

The departments of Justice and Transportation are separately reviewing

the three alliances under different statutory authorities and have different

remedies available to them. On October 23, 1998, Justice filed a civil

antitrust action to prevent Northwest from acquiring or holding a majority

of Continental’s voting stock. Justice said in its complaint that Northwest’s

gaining control would lessen competition in interstate trade and

commerce and unreasonably restrain trade. Justice believed that the

alliance would substantially diminish both airlines’ incentives to compete

against each other and would cause consumers to pay higher prices and

receive lower-quality service in some markets. Justice will review other

aspects of the Northwest-Continental alliance, as well as the other two

alliances, using guidelines that are applied to traditional mergers, but it is

under no timetable for these reviews. The Congress recently authorized

Transportation to impose waiting periods before certain joint venture

arrangements involving major airlines, such as frequent flyer programs,

can be effective. Transportation imposed a waiting period on the frequent

flyer and code-sharing aspects of the Northwest-Continental alliance

under this new authority but eventually agreed that the airlines could

proceed with their frequent flyer program. Transportation officials say that

they have received information about the United-Delta and American-US

Airways alliances’ frequent flyer agreements, which are already in effect.

Transportation will request additional information if it decides the

information received is not sufficient and if the airlines propose to extend

Page 3 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

their alliances to include code-sharing. Transportation also has the

authority to prohibit unfair methods of competition in the airline industry,

which it can use in reviewing alliances after they have been implemented.

Background Two or more airlines may enter into an alliance to increase their revenues

and the number of passengers they carry. Code-sharing is one type of

alliance. It can be an important marketing tool for airlines because it

allows the code-sharing partners to replicate the “seamless travel” that can

be provided by a single airline, known as “on-line” service. Airline

passengers prefer this type of service because it allows the convenience of

single ticketing and check-in, among other things.3

 For a code-sharing

flight, each partner sets its own fare for the entire trip, covering both the

segment it flies and the one its partner flies.

In recent years, alliances among airlines have become very common in

international aviation because they allow airlines to enter markets that

would be (1) too expensive to serve with their own aircraft or

(2) restricted under a bilateral aviation agreement with another nation.4

The Department of Transportation (DOT) reported that there were 74 active

alliances between U.S. and foreign carriers as of June 1998. In the simplest

case, an international code-sharing alliance links the route network of one

airline with the route network of another, forming an end-to-end alliance

with little overlap. Figure 1 shows how such an alliance links two airlines,

one with an extensive route network in the United States and the other

with an extensive route network in Europe and Africa.

3

Similar conveniences can be obtained between two airlines that have certain agreements, commonly

referred to as “interline agreements.” Interline agreements provide for the mutual acceptance by the

participating airlines of passenger tickets, baggage checks, and cargo waybills, as well as establish

uniform procedures in these areas. These agreements are common, but not universal, among the major

U.S. airlines. All major U.S. airlines except for Southwest have interline agreements. According to the

Department of Transportation, there are important differences between code-sharing and interline

agreements. For example, interline agreements typically do not include reciprocal frequent flyer and

airport lounge rights, and airlines will generally not hold outgoing connecting flights to wait for

delayed incoming flights. Most importantly, however, fares for code-sharing flights are generally much

cheaper than for interline flights. See pp. 19-20 for additional information on the relative prices of

interline and code-sharing flights.

4

According to United, its decision to enter a particular international market tends to be revenue-based

and considers such factors as the airline’s overall network size and presence at that city. Certain

markets may simply be too small to support head-to-head alliance competition.

Page 4 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Figure 1: Illustration of a Hypothetical End-To-End International Alliance

Individual airline networks

Overlapping route

In our previous work, we found that alliances between U.S. and foreign

airlines that involved code-sharing in a large number of markets did

benefit the alliance partners. The alliance generated large gains for the

partners in terms of passengers and revenues, mainly at the expense of

other airlines.5

 We also found that although consumers benefited from

conveniences such as shorter layovers, the data were insufficient to

determine the effects of the alliances on fares in the short term and on

competition and fares in the long term.

Domestically, code-sharing alliances have generally occurred between

major U.S. airlines and regional commuter airlines that transport

passengers, usually from smaller communities to the cities served by the

major carriers. Similar to international alliances, these alliances generally

link end-to-end networks without creating a significant overlap in service.

For example, United Airlines has a code-sharing agreement with Atlantic

Coast Airlines to bring passengers into its hub at Washington Dulles

5

International Aviation: Airline Alliances Produce Benefits, but Effect on Competition Is Uncertain

(GAO/RCED-95-99, Apr. 6, 1995).

Page 5 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Airport. Additionally, several major U.S. airlines have used code-sharing in

a limited number of markets. For example, in 1994, Continental and

America West airlines entered into a limited code-sharing agreement, and

in 1996, Northwest and Alaska Airlines also entered into a limited

code-sharing agreement.

The federal government has limited authority over proposed airline

alliances. In the international sector, the routes that airlines can fly, the

frequency of their flights, and the fares they can charge are governed by 72

bilateral agreements between the United States and other countries. Many

of these agreements are very restrictive. Since the late 1970s, U.S. policy

has been to negotiate agreements that substantially reduce or eliminate

bilateral restrictions (“open skies” agreements). In the domestic sector,

however, the Airline Deregulation Act of 1978 generally eliminated the

government’s authority over airline routes, frequencies, and pricing. Under

new legislation passed in October 1998, DOT has the authority to impose an

initial 30-day waiting period, which it may extend another 150 days for

joint ventures involving code-sharing between major airlines.6

 This

authority does not limit the Department of Justice’s (DOJ) authority to

enforce the antitrust laws. DOT may also investigate whether an alliance is

an unfair method of competition.

Status of the

Alliances: All Three

Alliances Have Been

Initiated

Since we testified in June 1998, each of the three domestic alliances has

begun to implement at least part of its agreement. On November 20, 1998,

Northwest and Continental announced that Northwest had completed its

acquisition of the equity position in Continental. The two airlines also

announced that they had revised their agreement and would implement

the marketing aspects of their alliance in December 1998. United and Delta

and American and US Airways have begun to implement their alliances,

although the United-Delta proposal no longer includes code-sharing. Like

the American-US Airways proposal, it is now limited to offering consumers

reciprocal frequent flyer and airport lounge benefits. 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.

6

P. L. 105-277, sec. 110(f). Generally, the joint venture agreements subject to this waiting period

include only those that were entered into by a major airline after Jan. 1, 1998, and involve

code-sharing, certain leasing arrangements, frequent flyer programs, and other cooperative working

arrangements designated by DOT.

Page 6 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

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.7

 The

agreement announced on that date is somewhat different from that

originally announced by the airlines in January 1998. 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,8

 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.

Continental said that to protect its stockholders, its board has adopted a

shareholder rights plan that will become effective if 15 percent or more of

its voting stock is acquired by a single investor.

Nevertheless, the closing of the stock acquisition represented a major step

toward implementing the “strategic global alliance” that the airlines

announced in January 1998 to connect their route systems. The two

airlines announced that they would accept code-sharing bookings starting

December 12, 1998, with code-sharing flights to Japan beginning

December 29, 1998, and to other destinations beginning January 7, 1999.

The code-sharing plan ultimately will include the airlines’ international

code-sharing partners, such as Air China9

 and KLM Royal Dutch Airlines.10

7

According to Northwest and Continental officials, the voting trust means that Northwest’s shares will

generally be voted in proportion to the votes of the non-Northwest shareholders. According to airline

officials, except in exceptional circumstances, the outcome of a vote will not be affected. The voting

trust ends after 6 years, and Northwest has agreed on significant voting restrictions for 4 years

thereafter. Northwest has also agreed to vote for a majority of independent directors on Continental’s

board. After 10 years, Northwest can exercise the full power of its ownership.

8

Northwest’s equity purchase equates to approximately 46 percent of the fully diluted voting rights

rather than 51 percent as originally proposed. (Fully diluted voting rights are those adjusted for the

conversion into common stock of all convertible securities.) Under the terms of the November

agreement, certain partners of the original holders of that stock retained approximately 5 percent of

the total stock but granted Northwest a “limited proxy” to vote these shares. According to a

Continental official, this means that these shares may be voted generally in accordance with

Northwest’s wishes only in extraordinary circumstances (e.g., matters that would materially affect

Northwest’s ownership position, such as potential mergers, recapitalizations, or liquidations) or in

circumstances where Northwest votes for directors in accordance with the recommendation of

Continental’s board, in which limited cases they would be voted as directed by Northwest. DOJ filed

an amended complaint on Dec. 18, 1998, to reflect Northwest’s consummation of its stock purchase

agreement and changes made to various agreements by the parties involved in the transaction. The

amended complaint alleges that Northwest would still own more than 50 percent of the fully diluted

voting power over Continental.

9

Northwest and Air China, the largest airline in China, announced their code-sharing arrangement in

May 1998, including Alaska Airlines, Continental, and America West. The arrangement gives Alaska

and America West their first Asian code-sharing partner, Continental its first access to mainland China,

and Northwest improved access to China.

10In Jan. 1993, DOT granted antitrust immunity to the Northwest-KLM alliance in conjunction with the

U.S.-Netherlands open skies accord.

Page 7 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Each airline has a separate code-sharing agreement with America West11

and may independently pursue other domestic alliances.12 The alliance will

also include the airlines’ regional partners, Northwest Airlink,13 in which

Northwest holds some equity, and Continental Express, which is wholly

owned by Continental. As part of the agreement, the airlines will also

undertake other cooperative activities, including marketing and

coordinating their flight schedules to improve connection times. Airline

executives stated that they will not coordinate pricing or capacity, and

they submitted their alliance proposal to DOJ under the Hart-Scott-Rodino

Antitrust Improvements Act of 197614 (Hart-Scott-Rodino Act) as if it were

a full merger. Northwest and Continental invited DOJ to review the

transaction under its stringent merger guidelines.

In addition, the airlines established reciprocal frequent flyer programs,

allowing members to earn and redeem their miles on either carrier.

Beginning December 6, 1998, members of each airline’s frequent flyer

programs can earn miles for travel on the other airline’s flights and can

begin redeeming miles on February 1, 1999, for travel beginning on

March 1, 1999. Both airlines announced several changes to their frequent

flyer programs, as well. For example, members will be able to redeem

mileage at reduced levels and travel during off-peak times. At other award

levels, the airlines will have fewer blackout dates (when frequent flyer

awards may not be used). On November 21, 1998, each airline opened its

club facilities to members of the other airline’s clubs, thereby expanding

the number of airports where members can use clubs.

Northwest’s principal service areas are the Midwest and Midsouth, while

Continental’s are the Northeast and Southwest. Figure 2 shows the

percentage share of departing passengers that the Northwest-Continental

alliance, had it been in effect in 1997, would have carried. It indicates that

the Northwest-Continental alliance would carry large percentages of

passengers (i.e., would have relatively large market strength) in the upper

Midwest, South, and Northeast. According to the airlines, these were

11America West and Continental have had a relatively limited code-sharing agreement since 1994. The

agreement has grown from 45 to 72 route segments, allowing Continental to place its code on America

West’s flights west of Phoenix and Las Vegas and allowing America West to place its codes on

Continental’s flights east of Houston, Cleveland, and Newark.

12Alaska Air Group, Inc., owners of Alaska Airlines and Horizon Airlines, has a code-sharing agreement

with Northwest and recently agreed to one with KLM. The Alaska—Northwest code-sharing agreement

covers all of Northwest’s markets and Alaska’s feeder markets (routes into Seattle and Los Angeles

through Horizon Airlines, a wholly owned subsidiary of Alaska Air Group, Inc., which also owns

Alaska Airlines). These routes serve to funnel Alaska’s passenger traffic on to Northwest’s

trans-Pacific, transcontinental, and Midwest flights.

13The Northwest Airlink carriers are Mesaba Airlines and Express Airlines I. Code-sharing with other

regional partners will have to be negotiated separately.

1415 U.S.C. § 18a.

Page 8 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

essentially preexisting market shares of Northwest and Continental,

respectively, and the market shares in these regions did not increase

materially as a result of the alliance.

Page 9 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Figure 2: Percentage of Each State’s Departing Passengers That the Northwest-Continental Alliance Would Have Carried

Less than 10%

10% - 25% 

26% - 49%

Over 50%

Note: This figure is based on the alliance’s share of the number of departing passengers carried

by all major airlines, by state, during 1997. In 1997, the major airlines carried 85.8 percent of all

passengers enplaned in the United States.

For the purposes of this and subsequent figures, we classified passengers originating from the

Greater Cincinnati International Airport as originating from Ohio, rather than Kentucky (where the

airport is located), and those originating from Washington Reagan National Airport as originating

from Virginia, rather than the District of Columbia or Maryland. We did so because information

from the airports indicated that more of their passengers came from these states than from the

other jurisdictions.

Source: GAO’s analysis of information provided by Data Base Products, Inc.

Page 10 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Under the alliance, the two airlines combined carry approximately

15 percent of the total domestic passenger market. Such a combination

effectively creates the second largest domestic market share (in terms of

the number of passengers carried), behind Delta’s 18 percent and ahead of

United’s 13 percent. (See app. I for more detailed information on the

domestic market shares of U.S. airlines.)

United and Delta Have

Begun Implementing a

More Limited Alliance

Than Originally Proposed

In April 1998, 3 months after Northwest and Continental proposed their

alliance and investment agreements, United and Delta announced their

plan to form a global alliance. This alliance would have linked the two

largest domestic airlines through code-sharing and reciprocal frequent

flyer programs. Moreover, as envisioned, it would have produced a larger

combined market share than either of the other alliances—almost

31 percent of domestic passengers. It would have joined United’s

extensive route networks in the West and Midwest with Delta’s similarly

extensive networks in the East, Southeast, and Southwest. Figure 3 shows

the percentage share of departing passengers that the United-Delta

alliance, had it been in effect in 1997, would have carried. It indicates that

the alliance, as originally proposed, would have had market strength

virtually nationwide.

Page 11 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Figure 3: Percentage of Each State’s Departing Passengers That the Originally Proposed United-Delta Alliance Would Have

Carried

Less than 10%

10% - 25% 

26% - 49%

Over 50%

Note: Figure 3 is based on the alliance’s share of the number of departing passengers carried by

all major airlines, by state, during 1997. In 1997, the major airlines carried 85.8 percent of all

passengers enplaned in the United States.

Source: GAO’s analysis of information provided by Data Base Products, Inc.

On September 1, 1998, however, Delta and United announced that they

had discontinued discussions concerning code-sharing arrangements.15

15On Aug. 17, 1998, Delta’s board said that it would not grant an Air Line Pilots Association proposal to

convert its existing nonvoting seat on the board to full voting status.

Page 12 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

The two airlines implemented their reciprocal frequent flyer programs on

September 1, 1998, allowing passengers who fly on either airline to choose

the program where they accrue and redeem their miles.

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. The airlines further announced a special

methodology for allocating costs between the two airlines on interline

flights. According to US Airways, the methodology allows each airline to

recover its costs for the segment it flies and to divide revenues in the same

proportion. Airline officials have said that they may consider some very

limited code-sharing with their regional partners, American Eagle and US

Airways Express.16

American and US Airways offer greater market presence in different parts

of the country. US Airways has a strong presence in the Northeast,

Mid-Atlantic, and Southeast, while American’s network extends across

much of the rest of the United States.17 Should this arrangement move

beyond reciprocal frequent flyer programs to code-sharing, the alliance’s

market share would be about 22 percent of total domestic passengers.

Figure 4 shows the percentage share of departing passengers that the

American-US Airways alliance, had it been in effect in 1997 and extended

to include code-sharing, would have carried. It indicates that such an

alliance would have had market strength mostly on the East Coast.

16According to the airlines, there has been some discussion of such code-sharing, but certain labor and

commercial issues remain to be resolved. Senior management of US Airways has stated that it does not

favor domestic code-sharing between the mainline divisions of US Airways and American but would

consider such code-sharing as a competitive response to actions of other airlines and alliances. As of

the end of Dec. 1998, the two airlines had not discussed mainline code-sharing.

17On Nov. 19, 1998, American Airlines announced that it had agreed to acquire Reno Air for

$124 million. Reno’s 16-city route system extends from Oklahoma City to Anchorage and includes

service to Tucson, San Diego, Los Angeles, San Francisco, Portland, and Seattle. It also serves San

Jose, subleasing the gates formerly operated by American. This purchase will strengthen American’s

north-south route system on the West Coast. On Dec. 9, 1998, Alaska Air Group, Inc., announced that it

had signed a letter of intent for the creation of a marketing partnership between its subsidiaries,

Alaska Airlines and Horizon Air, and American Airlines—American Eagle. Alaska and Horizon intend

to implement fully reciprocal frequent flyer relationships with American and American Eagle, allowing

customers to earn and use mileage awards across each other’s networks. Code-sharing by the airlines

has also been discussed but is subject to labor contract provisions.

Page 13 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Figure 4: Percentage of Each State’s Departing Passengers That a Code-Sharing Alliance Between American and US

Airways Would Have Carried

Less than 10%

10% - 25% 

26% - 49%

Over 50%

Note: Figure 4 is based on the alliance’s share of the number of departing passengers carried by

all major airlines, by state, during 1997. In 1997, the major airlines carried 85.8 percent of all

passengers enplaned in the United States. This figure also includes Reno Air’s share of

departures in the markets served by Reno in 1997.

Source: GAO’s analysis of information provided by Data Base Products, Inc.

Page 14 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Alliances Could Have

Beneficial and

Harmful Effects on

Consumers

The alliances may have beneficial and harmful effects on consumers.

Because the alliances currently differ in scope, their potential benefits

range from increased on-line service and more efficient routings to

enhanced frequent flyer programs and access to more club facilities.

Harmful effects will occur if competition is reduced. Alliance airline

officials have stated that they will act independently. On the other hand,

industry experts have said that they think competition between alliance

partners will decline over time. It is difficult to determine what will

happen in the future, but some experts’ concerns are consistent with

widely held economic principles and past experience in the airline

industry. With code-sharing, the opportunity for harm increases with the

number of overlapping markets and the number of passengers flying in

these markets. Thus, an end-to-end alliance with few overlapping routes

that serves fairly small markets is less likely to threaten competition than

an alliance between partners that share a number of heavily traveled

markets. In addition, under enhanced frequent flyer programs, it may be

more difficult for would-be competitors to enter markets where the

alliance partners already have a substantial market share, thus further

limiting competition and the potential benefits of deregulation in the

airline industry.

This section examines the potential beneficial and harmful effects on

consumers of the arrangement between Northwest and Continental—the

only one with plans for equity acquisition and code-sharing as of

December 1998 (see app. II for a detailed description of our scope and

methodology). However, the other alliances may introduce code-sharing if

the Northwest-Continental proposal is implemented. Consequently, we

analyzed the potential effects of the United-Delta alliance (see app. III) and

of the American-US Airways alliance (see app. IV) using the same

approach and framework that we applied to the Northwest-Continental

alliance. We also analyzed the potential effects, on consumers and the

industry as a whole, of all three alliances’ implementing code-sharing (see

app. V).

Northwest-Continental

Alliance Could Have Both

Beneficial and Harmful

Effects on Consumers

Because the Northwest-Continental alliance involves code-sharing, it

could benefit consumers in several ways. First, it will create new on-line

destinations, even though no aircraft or flights are added. In addition, it

will increase the number of flights in a market attributable to a single

airline (flight frequencies) and provide better connections so that

consumers can reach their destinations sooner. Finally, the alliance will

give consumers more frequent flyer award destinations and access to more

Page 15 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

club facilities. At the same time, however, the alliance creates the

possibility of harm for air travelers, especially over the longer term. If

competition is reduced, consumers would be harmed. Specifically, should

the airlines compete less vigorously or act as one entity if Northwest

acquires a majority interest in Continental, then consumers could be

harmed through the decrease in competition, especially on routes where

both airlines previously competed. Our analysis of the potential beneficial

and harmful effects of the alliance between Northwest and Continental

follows.

Alliance Could Benefit

Consumers by Providing More

On-Line Destinations

According to Northwest and Continental officials, their alliance will create

new on-line service to 2,007 new domestic and international city pairs,

thereby benefiting the approximately 3.4 million passengers who flew on

these routes in 1997.18 One airline official believes that the new on-line

service will divert passengers from other airlines that provide poorer

connections and will stimulate new flying by passengers who previously

chose not to fly. Because the alliance will convert passenger routings from

interline connections to on-line connections, the official also expects the

alliance partners to offer lower fares in some markets that previously

could be served only on an interline basis.19In turn, such lower fares will

also stimulate travel on these routes.

Because this study is limited to domestic airline alliances, we did not

analyze the impact of the alliance on Northwest’s and Continental’s

international markets. We did, however, analyze its impact on both

airlines’ domestic markets and included in our review new markets that

would be created through routes with one or two connections. Although

the airlines also included new city pairs that would be created through

routings that require three connections, we did not include these markets

because we believe that the number of passengers who would book flights

with so many connections is relatively small.20

18According to an economic consultant for Northwest, these cities are mainly, but not exclusively,

located in the United States. Included are cities served by Northwest and Continental in North and

Central America, but not those in Europe, Asia, or South America.

19According to airline officials, interline fares are most frequently the sum of the fares for each airline’s

segment of the itinerary. Even when tickets are purchased well in advance to take advantage of

possible airline discounting, such fares tend to be considerably higher than on-line fares from the same

origin to the same destination. Newly created on-line fares should be less expensive than these

interline fares because each airline in an alliance now has an incentive to compete on fares to attract

passengers to its own airline.

20We also limited our analysis of this and the other alliances in other ways. For example, using the

airlines’ published schedule for May 1998, we required arriving and departing flights to be scheduled

within 30 and 150 minutes to qualify as potentially valid connections. For double connections, we

limited our analysis to flights that connected through the partners’ hubs. For additional information on

our methodology, see app. II.

Page 16 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Our analysis showed that a code-sharing alliance between Northwest and

Continental would serve considerably fewer new airport pairs than the

airlines estimated. We found, first, that such an alliance could create

on-line single-connection service in 74 markets that served about 400,000

passengers in 1997 (or about 15 per day per route). In 22 of these markets,

the Northwest-Continental alliance would produce superior service to that

already offered by a competitor. In the other 52 markets, competing

airlines’ existing service would be superior or at least equal to that

anticipated under the alliance. At the same time, however, we found that

the alliance would create no new service in any of these single-connection

markets because all 74 were already served either by one of the alliance

partners or by a competitor. We also found that a Northwest-Continental

alliance could create 71 new double-connection markets. The

Northwest-Continental alliance would provide superior service to that

offered by competitors in two markets, but other competing airlines

already provided superior or equal service in the other 69 markets. Table 1

provides our detailed analysis of the new on-line benefits that consumers

could expect from this alliance.

Page 17 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Table 1: GAO’s Analysis of Airport Pairs That Would Receive New On-Line Service Through Single or Double Connections

Under a Northwest-Continental Alliance

Total markets and average number of

passengers per day who would

receive new Northwest-Continental

service

Type of new on-line service

Number of

markets

Average number

of passengers per

day per market in

1997

Number of

markets in which

competing

airlines provide

superior servicea

Number of

markets in which

competing

airlines provide

equal serviceb

Number of

markets in which

competing

airlines provide

inferior servicec

Single-connection 74 15 10 42 22

Double-connection 71 6 54 15 2

aSuperior service includes current direct and nonstop service by competitors between airports

that Northwest-Continental could serve at best with single-connection service; and direct,

nonstop, or single-connection service by competitors between airports that Northwest-Continental

could serve at best with double-connection service. Direct service differs from nonstop service in

that a “direct” flight makes a scheduled stop between an origin and a destination, but passengers

flying between the origin and destination are not required to change planes, while a nonstop flight

between an origin and a destination makes no scheduled stops en route.

bEqual service means that competing airlines currently offer service that matches the

Northwest-Continental alliance’s potential single- or double-connection service.

cInferior service means that competing airlines currently offer (1) no service or double-connection

service between airports where the Northwest-Continental alliance could offer single-connection

service or (2) no service between airports where the alliance could provide double-connection

service.

Source: GAO’s analysis of information provided by BACK Associates and Data Base Products,

Inc.

Alliance Could Benefit

Consumers by Providing More

Frequencies and Improved

Routings

According to Northwest and Continental officials, the alliance will provide

17,446 new on-line flight opportunities in 10,459 markets that, they say,

will create additional routings in existing markets, increasing convenience

and choice for their passengers and reducing travel times for an estimated

250,000 passengers. For example, Northwest and Continental say that by

routing passengers from Milwaukee to Honolulu through San Francisco

instead of Seattle, the alliance will shorten these passengers’ connection

times by about 1.5 hours.

Our limited analysis of flight frequencies suggests that the alliance could

result in new, possibly improved, route options. For various technical

reasons, we were unable to duplicate the model that Northwest and

Continental used to calculate the number of new routing possibilities. We

note, however, that their earlier modeling of benefits included destinations

other than those in the United States, causing them to overestimate the

new domestic routing possibilities.

Page 18 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Alliance Could Benefit

Members of the Airlines’

Frequent Flyer Programs and

Clubs

Although there is some uncertainty about the extent of the service and

routing benefits under the Northwest-Continental alliance, the agreement

to offer reciprocal access to the airlines’ frequent flyer programs and club

facilities could provide direct benefits to customers of both airlines.

Passengers may choose to participate in one or both of the frequent flyer

programs (either Northwest’s “WorldPerks” program or Continental’s

“OnePass” program), but miles earned on any given alliance flight can be

awarded to only one program. Travelers will not be able to combine miles

from both programs to achieve an award. This reciprocal relationship

should increase the value of these programs to frequent flyers because

more destinations and frequencies will be available. Northwest and

Continental do not expect to significantly change how they distribute

frequent flyer seats, which may be different on each flight because of

various market forces. According to the airlines, club members will have

access to facilities at all the airports where the alliance partners have club

facilities starting November 21, 1998.

Members of each airline’s frequent flyer program could benefit from the

alliance’s ability to offer new destinations. When announcing the

consummation of their alliance, both airlines announced enhancements to

their programs. Northwest noted that its WorldPerks members will still be

able to redeem free travel awards for as few as 20,000 miles within North

America and that these awards will be available for travel during 9 months

of the year instead of just 10 weeks. Northwest also announced a number

of changes to its frequent flyer program, including fewer blackout dates

(when frequent flyer awards cannot be used) for WorldPerks travel within

North America. Continental announced that travel during off-peak times

will be available at reduced mileage levels starting March 1, 1999.

Potential Harmful Effects of

Alliance Depend on Whether

Partners Compete Less

Vigorously

According to Northwest and Continental, their alliance is unlikely to harm

consumers because it is an end-to-end alliance with relatively few

overlapping markets. Nevertheless, the alliance could harm consumers if it

decreases competition in markets that are already served by both

partners,21 especially in those where the alliance gives the partners a

“dominant” market position (i.e., control of more than 50 percent of the

market). Such an increase in market dominance is significant, according to

industry analysts, who predicted that the partners might not be able to

gain much market share overall but might be able to increase

revenues—presumably by raising fares—in individual markets where they

21DOJ’s lawsuit against the investment agreement between Northwest and Continental states that the

acquisition would substantially diminish the incentives for the two airlines to compete against each

other.

Page 19 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

held a dominant position.22 The Northwest-Continental alliance could also

increase barriers for other airlines that might want to enter particular

markets. To examine the potential harm from the alliance, we determined

the extent to which each airline’s routes overlapped with those of its

alliance partner by analyzing 1997 data on the 5,000 busiest domestic

airport-pair origin and destination markets or markets for air travel

between two airports. These 5,000 markets accounted for over 90 percent

of the total U.S. domestic air traffic in 1997.23

Experts Suggest Partners May

Not Compete Vigorously, but

Airlines Say They Will

The potential for the Northwest-Continental alliance to harm consumers

depends on the features of the agreement and on whether it creates an

environment that discourages competition between the two partners.

Several factors could influence whether the partners cooperate rather than

compete as independent entities. These factors include how much

ownership one partner has in the other, how revenue from jointly operated

flights is shared, whether the airlines’ pricing practices change, and

whether the airlines coordinate their schedules, especially if such

coordination reduces the total number of flights or available seats in a

market. Some of this information is contained in proprietary documents

provided by Northwest and Continental to DOJ and DOT. Northwest and

Continental declined to let us review these confidential documents, but we

discussed various elements of the agreement with airline officials and

industry experts.24

All but one of the industry experts whom we interviewed agreed that an

investment such as Northwest’s in Continental would be likely to affect

the behavior of the airlines over time, encouraging them to cooperate in

order to maximize the value of the investment to their stockholders. Some

of these industry experts believed that the alliance partners would not

vigorously compete with each other, particularly over the long term. If

they are correct, then the alliance could have harmful effects on

consumers. In contrast, officials from Northwest and Continental insist

that while their alliance arrangement is in many ways like a merger, the

airlines will continue to operate independently. They said that although

22We have also reported in the past that airfares in dominated markets tend to be higher than in other

markets. See, for example, Airline Competition: Effects of Airline Concentration and Barriers to Entry

on Airfares (GAO/RCED-91-101, Apr. 26, 1991).

23The following example indicates how large these markets are: The smallest of the top 5,000 were

between Jacksonville, Florida, and Newport News/Williamsburg, Virginia, and between Burlington,

Vermont, and Cleveland, Ohio. In each of these markets, 7,964 passengers (an average of 22 each day)

flew in 1997.

24These industry experts included several financial analysts in New York investment firms and

brokerage services, nationally recognized academicians, and other individuals with expertise in

specific aspects of the industry, such as computer reservation systems.

Page 20 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Northwest will own the largest percentage of the voting stock in

Continental, it will not own a majority of the voting stock and its voting

trust agreement with Continental is such that it effectively has no ability to

affect or influence the control or management of Continental for the next

10 years.25

Industry experts expressed concern that this alliance could create an

environment in which the airlines would compete less vigorously even if

there were no change in equity between the alliance partners. One

industry expert we spoke with said that in the airline industry, where there

are only a few firms and where rivals’ fare and schedule information is

widely available, tacit coordination is relatively easy. Some industry

experts pointed out, for example, that the two airlines could cooperate on

some aspects of their business. As a result, according to this expert,

Northwest and Continental might not compete aggressively on fares or

schedules, fares could rise, and service levels could eventually decline. In

contrast, Continental and Northwest officials said that they will continue

to set fares and schedules independently and that competition will not

decline because of the alliance. For example, on nonstop routes that both

airlines serve, Continental will receive a booking fee that is similar to a

travel agent’s fee (an amount equal to Continental’s costs) for ticketing a

passenger on a Northwest flight, but none of the revenue, and vice versa.

As a result, airline officials say, each airline will have an incentive to book

passengers on its own airplanes. When a passenger’s travel involves

segments served by both airlines, revenues will be split between the two

airlines on the basis of a prorated schedule that is standard in the industry.

When announcing the stock acquisition, Northwest and Continental also

said that they would not implement code-sharing on the seven hub-to-hub

25According to Continental officials, the governance agreement between the two airlines deprives

Northwest of substantially all voting power over the Continental securities it acquired, severely limits

Northwest’s ability to acquire additional voting securities, and prohibits Northwest from seeking to

affect or influence Continental’s business. As a result, they say, Northwest effectively has no ability to

affect or influence the control or management of Continental. In its antitrust complaint against

Northwest and Continental, DOJ disagreed with this conclusion. DOJ said that “. . . the governance

agreement does not prevent the harm likely to result from Northwest’s acquisition of voting control of

Continental. No private agreement can alter the fact that Northwest still owns Continental, and

Continental will not compete vigorously with its owner during the term of the governance agreement.”

After DOJ filed its complaint, Northwest and Continental announced a revision to the acquisition

agreement that provides Northwest with less than half—46 percent—of the voting control of

Continental. Certain partners of the original seller of the majority control of Continental, Air Partners,

L. P., retained ownership of 853,644 shares of Continental’s stock, or about 5 percent, and granted

Northwest a limited proxy for the voting of these shares, thereby limiting the ability of Northwest to

exercise strict voting control over Continental. On Dec. 18, 1998, DOJ filed an amended complaint

reflecting the consummation of Northwest’s stock purchase agreement and changes made to various

agreements by the parties involved in the transaction. The amended complaint alleges that Northwest

would still own more than 50 percent of the fully diluted voting power over Continental. See pp. 37 to

39 for additional information.

Page 21 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

routes that they both serve. For example, for flights from New York City to

Detroit, the two would continue to compete directly.

It is difficult to determine precisely how the alliance will affect

competition, but the industry experts’ concerns and the airlines’ past

records establish cause for concern. As discussed, there is widespread

agreement among these experts that competition will likely decline over

time as firms recognize their interdependence and maintain prices above

the competitive level. This understanding is consistent with widely held

economic principles showing that competition lessens when there are

fewer competitors. It is also consistent with a recent DOT paper containing

evidence that, when given the chance, airlines do not compete vigorously.26

 According to DOT, prices on routes of less than 750 miles were generally

not competitive unless a low-fare carrier, such as Southwest, served the

route and kept prices closer to a competitive level. On routes not served

by a low-cost carrier, major airlines have recognized their

interdependence and kept prices above the competitive level. If the ties

between major airlines are strengthened, the airlines will have even more

opportunities to recognize their interdependence. If this occurs,

competition may suffer and prices may rise.

Northwest-Continental Alliance

May Decrease Competition in

Certain Markets and Could

Potentially Harm Consumers

If the partners in the Northwest-Continental alliance do not vigorously

compete over time, the harm to consumers will depend on the number of

markets where the partners provide overlapping service (including the

number of passengers served), the alliance’s share27 of these markets, and

the effects of the alliance on barriers to entry.

The Alliance Could Reduce Competition in Shared Markets. We found that

a Northwest-Continental alliance could reduce or eliminate competition in

63 of the top 5,000 markets. Nearly 2 million passengers traveled in these

markets in 1997. The alliance could effectively eliminate competition in

five markets, with about 36 percent of these passengers (723,186 in 1997),

by reducing the number of competing airlines from two to one. The largest

of these markets is Detroit to Newark, where the alliance partners served

97 percent of the market in 1997—428,574 passengers. In 24 markets, the

alliance could reduce the number of competitors from three to two, and it

could become the largest carrier in nearly two-thirds of these markets. The

26See Competition in the U.S. Domestic Airline Industry: The Need for a Policy to Prevent Unfair

Practices, DOT (July 1998).

27Market share may be determined by any number of measures, such as the total number of passengers

that an airline carries, the number of available seats flown by the airline, or the total number of

departures in a given market. For this report, we measured market share by the number of passengers

carried in a given airport-pair market.

Page 22 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

markets where the alliance could decrease the number of competitors to

three or fewer served approximately 1.6 million passengers in 1997. These

are the markets that could suffer the greatest potential harm from the

alliance.28 Figure 5 illustrates the number of markets and passengers with

the potential to be harmed under a Northwest-Continental alliance if the

partners do not price their fares independently.

28For all markets that experienced decreases in the number of active competitors, we calculated the

Herfindahl-Hirschmann Index (HHI), a measure of concentration used by DOJ, in which higher scores

reflect greater increases in market dominance. The HHI is calculated by summing the squares of the

individual market shares of all participants. An HHI below 1000 is considered unconcentrated,

between 1000 and 1800 moderately concentrated, and above 1800 highly concentrated. The average

change in the HHI for the Northwest-Continental alliance was 994, with a range of 219 to 4,588. This

suggests that the Northwest-Continental alliance would create much greater concentration in markets

where the alliance might reduce the number of active competitors from three to two and from two to

one than in markets where the alliance might reduce the number of active competitors from five to

four.

Page 23 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Figure 5: Number of Markets and

Passengers Subject to Potentially

Decreased Competition Under the

Northwest-Continental Alliance

 0

25

50

75

100

125

150

175

200

225

250

0

1

2

3

4

5

6

7

8

9

10

11

Markets Passengers (millions)

2 to 1 3 to 2 4 to 3 5 to 4 6 to 5

Potential decrease in number of competitors

Number of markets

1997 passengers

Note: So that readers can more easily compare the number of markets and passengers

potentially affected by the Northwest-Continental alliance with the number of those potentially

affected by the two other alliances and by all three alliances, should they eventually move to

code-sharing (see figs. III.1, IV.1, and V.1), we are using the same scales for all figures.

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

Northwest and Continental have attempted to address DOJ’s concerns

about competition. According to Northwest and Continental officials, the

airlines have agreed not to implement code-sharing in the local hub-to-hub

markets, such as Detroit to Newark, where DOJ identified potentially

Page 24 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

anticompetitive effects.29 While refraining from code-sharing is a positive

step on the part of the airlines to address these concerns, some industry

experts with whom we spoke expressed doubt about how much it would

reduce the potential harm to consumers. They explained that because the

alliance partners would continue to exchange information on other

aspects of their operations, such as scheduling, they may not be able to act

as independent competing airlines.

To a certain extent, the harmful effects of reducing competition in some

markets, assuming the alliance partners will not compete, could be

mitigated by increasing competition in other markets. In 286 of the top

5,000 markets, each of the two carriers has a limited market share that, if

combined, would create a larger, active competitor.30 These markets

served a total of 15.1 million passengers in 1997.31 However, on average,

the effect of creating this potentially stronger competitor is relatively small

because some of these markets continue to be dominated by other

airlines.32 For example, in 36 of the 286 markets where the

Northwest-Continental alliance’s market share will equal or exceed 10

percent, another single competitor will remain dominant. These 36

markets served 1.2 million passengers in 1997. Thus, although the alliance

29The DOJ complaint also cited the following six city-pair market as potentially troublesome:

Detroit-Cleveland, Detroit-Houston, Cleveland-Minneapolis, Minneapolis-New York City,

Houston-Minneapolis, and Houston-Memphis. By forgoing code-sharing in these markets, the airlines

have adopted an approach similar to that often used by international airline alliances seeking antitrust

immunity. For example, in reviewing the alliance between United and Lufthansa German Airlines, DOJ

expressed concern that the two airlines could dominate particular city- or airport-pair markets. DOT

ordered that antitrust immunity would not extend to airline activities relating to pricing, inventory or

yield management coordination, or pooling of revenues, with respect to certain passengers flying

nonstop between Chicago and Frankfurt, and Washington and Frankfurt.

30Our prior testimony, Aviation Competition: Proposed Domestic Airline Alliances Raise Serious Issues

(GAO/T-RCED-98-215, June 4, 1998), which presented our preliminary work, used 5 percent as a

minimum market share to determine the presence of a competitor, a standard consistent with the

work of some other researchers. DOT uses 10 percent to define a competitor, and subsequent

discussions with DOT officials, some airline officials, and industry experts convinced us that 10

percent better reflected a competitor in the market. Accordingly, for the purposes of this report, we

are defining any airline or alliance as an “active competitor” if it carries 10 percent or more of any

given market. Conversely, if an airline or an alliance has less than 10 percent of any given market, we

are defining its market share as “limited.” The effect of raising the market threshold should help

eliminate some potential problems in the quality of the data reported to DOT and reduce the counts of

markets (and thus of passengers) affected positively or negatively by the formation of the alliances.

31Northwest-Continental officials used a higher threshold in calculating when the alliance would

increase service. They stated that by creating a market presence of at least 15 percent, their alliance

would create broader service offerings in 32 other major cities, affecting 33.4 million passengers. For

example, cities like Orlando and Indianapolis would have two significant carriers instead of one; and

Baltimore, Tampa, and Columbus would have three significant carriers instead of two. We could not

verify the number of passengers affected.

32The average increase in the HHI attributable to the creation of the Northwest-Continental alliance for

these 286 markets is 71, with a range of 2 to 191. This indicates that the addition of the alliance as an

active competitor would make relatively little difference in the competitive structure of these markets.

Page 25 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

will create a greater presence in many markets, offering more flights and

choices to travelers, the overall improvement in competition will be

limited by other dominant competitors.

The Alliance Could Create Some Additional Dominant Markets. Market

share is particularly important in determining the extent to which an

alliance may be harmful to consumers. Industry experts generally agree

that if an airline can capture significant market share, its revenue share

will increase faster than its market share; in other words, an airline can

earn a fare premium because, among other reasons, it offers the high level

of flight frequencies preferred especially by business travelers. Airlines

that achieve a dominant market position can drive out airlines with

smaller market shares by making it unprofitable for them to compete.

Additionally, a number of studies have shown that markets with fewer

competitors, especially those dominated by a single carrier, have higher

fares.33 We reported in 1993, for example, that fares at concentrated

airports were about 22 percent higher than fares at less concentrated

airports.34

Table 2 shows how many of the top 5,000 busiest airport-pair markets in

1997 were already dominated by either Northwest or Continental, as well

as how many will be dominated through the alliance’s creation. Northwest

dominated 325 markets and Continental dominated 142 markets. By

combining the partners’ market shares, the alliance will gain a majority

share in 25 additional markets (an increase of 5 percent). One market,

Atlanta-Newark, was relatively large, having served 1.2 million passengers

in 1997 (3,205 passengers per day, on average). However, none of the other

markets were relatively large; they served an average of 135 passengers

per day in 1997. Markets that will be dominated by the new alliance

include Atlanta-Newark and Cleveland-Phoenix.

33See, for example, Steven A. Morrison, “New Entrants, Dominated Hubs, and Predatory Behavior,”

Statement before the Subcommittee on Antitrust, Business Rights, and Competition, Committee on the

Judiciary, United States Senate (Apr. 1, 1998).

34Airline Competition: Higher Fares and Less Competition Continue at Concentrated Airports

(GAO/RCED-93-171, July 15, 1993).

Page 26 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Table 2: Effect of the

Northwest-Continental Code-Sharing

Alliance on Market Dominance

Number of markets with

more than 50-percent

market share

Number of

passengers, 1997

Northwest 325 20,790,192

Continental 142 17,548,616

Alliance (new) 25 2,355,163

Total 492 40,693,971

Notes: Market share is defined as the percentage of domestic traffic in 1997. Dominant markets

are defined as those with more than 50-percent market share.

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

The Alliance Could Increase Operating and Marketing Barriers to Entry.

To the extent that an alliance creates barriers to market entry, it can limit

competition. If entry is easy, a single airline cannot charge monopoly

prices over the long term because other airlines will enter and provide

competition. However, if entry is difficult, then the airline may offer fares

above competitive levels. As we have reported in the past, operating

barriers such as slot controls and gate constraints (long-term leases for

one airline’s exclusive use of a large number of gates) have contributed to

higher fares on routes to and from some airports.35 If the formation of an

alliance further concentrated control in one entity at any of these airports,

then fares might rise and the prospects of new competition at these

airports might be further diminished. Similarly, marketing barriers such as

frequent flyer programs and travel agent commission overrides36 can also

inhibit competition, particularly in markets already dominated by a given

airline.37

The Northwest-Continental alliance will not appreciably change the level

of concentration at slot-controlled and gate-constrained airports.

Northwest’s hubs at Minneapolis and Detroit and Continental’s hub at

Newark are gate-constrained airports because Northwest and Continental

control all or a majority of the leases there. However, these three airports

are already heavily concentrated, and the combination of these two

carriers will not change that. For example, in 1997, Northwest held

35See Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic

Markets (GAO/RCED-97-4, Oct. 18, 1996).

36A travel agent commission override is a special bonus paid by an airline to travel agents or agencies

as a reward for booking a targeted proportion of passengers on the airline.

37See Aviation Competition: International Aviation Alliances and the Influence of Airline Marketing

Practices (GAO/T-RCED-98-131, Mar. 19, 1998).

Page 27 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

77.8 percent of the market (defined as the total number of enplanements

for the year) at Detroit, and Continental held only 1.6 percent.

We did not evaluate the potential effect on other carriers or consumers of

combining the two airlines’ frequent flyer benefits. Earlier this year,

however, we reported on how certain marketing practices, such as

frequent flyer programs, can act as barriers to entry.38 The combination of

frequent flyer programs under an alliance could present a more formidable

barrier to entry for new-entrant airlines and point-to-point carriers lacking

extensive networks. Northwest has approximately 20 million members in

its WorldPerks frequent flyer program, and Continental has approximately

16 million in its OnePass program.

Consumer advocates we interviewed expressed some concern that the

airlines might increase their frequent flyer award requirements in the

future, thereby discounting the value of the frequent flyer benefits. They

also noted that because members of both airlines’ frequent flyer programs

may redeem miles on both carriers, finding available mileage awards could

become far more difficult.

In addition, a nonaligned airline, consumer groups, and an industry expert

stressed the adverse effect on competition that alliances like the one

between Northwest and Continental could have through computer

reservation systems. The alliance could gain a competitive advantage

through multiple listings of the same code-sharing flight on the reservation

screen, increasing the likelihood that the alliance’s flights would be the

first offered to the consumer.

Alliances Between

American-US Airways and

United-Delta May Increase

Operating and Marketing

Entry Barriers for Certain

Airlines

As of October 1998, the arrangements between American and US Airways

and between Delta and United were generally limited to ties between their

respective frequent flyer programs, including reciprocal access to airport

lounges. Implementation of the frequent flyer agreement between

American and US Airways began in August 1998, and Delta and United

began participating in each other’s frequent flyer programs on

September 1, 1998.39 Reciprocal access to both airlines’ airport clubs will

follow. Both alliances will provide benefits to members of each airline’s

38See footnote 38.

39According to data from InsideFlyer magazine, as of Aug. 1998, American had 32.0 million members in

its Aadvantage program (the largest membership of any frequent flyer program in the world), US

Airways had 4.0 million Dividend Miles members, United had 23.0 million MileagePlus members, and

Delta had 17.5 million SkyMiles members.

Page 28 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

frequent flyer program by offering new destinations to which members can

fly. At the same time, however, by solidifying their customer base through

such marketing efforts, the alliances may raise further barriers to entry for

new airlines in certain markets.

Passengers who belong to both American’s and US Airways’ frequent flyer

programs will be able to combine miles from both airlines to redeem an

award for travel on either airline. Because the partners offer greater

market presence in different parts of the country (as well as

complementary international destinations), according to airline officials,

American’s frequent flyers will have access to 105 new award destinations

and US Airways’ frequent flyers will be eligible for award travel to 120 new

destinations. In addition, American’s frequent flyers will be able to use

their miles from either airline to claim awards on certain US Airways

Shuttle flights between Washington, D.C.; New York; and Boston.40 The

two airlines have also agreed to allow reciprocal access to all domestic

and international club facilities. American’s club members will gain access

to US Clubs at 12 additional airports, and US Club members will gain

access to 35 American clubs. The agreement between Delta and United is

somewhat more limited. Passengers may choose to participate in one or

both frequent flyer programs, but miles earned on any given alliance flight

may be awarded to only one program. Passengers will not be able to

combine miles earned from both programs to obtain an award from one of

the alliance partners. Because of the number of locations served uniquely

by United and Delta, according to airline officials, United’s frequent flyers

will have access to 75 new domestic award destinations and Delta’s

frequent flyers will be eligible for award travel to 108 new domestic

destinations (assuming the alliances’ frequent flyer program award

destinations extend to the airlines’ commuter partners).

As noted in discussing the Northwest-Continental alliance, we did not

evaluate the effect on other carriers or consumers of combining frequent

flyer benefits through an alliance, but we have reported that the existence

of frequent flyer programs can act as a barrier to entry for new-entrant

airlines and point-to-point carriers lacking extensive networks.

40Effective Feb. 1, 1999, American will raise the number of miles required for first class and business

class tickets in most international markets. In addition, an upgrade from a discounted domestic ticket

to a first class ticket will require 30,000 miles instead of 20,000 miles. Coach class awards will remain

the same. American also eased some mileage requirements, such as the number of miles needed to

claim an upgrade for passengers traveling on a full-fare ticket.

Page 29 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Federal Reviews of

Alliances Are Ongoing

DOJ and DOT have both been examining the alliances. Although

cooperating, they are conducting separate reviews because they have

different statutory authorities, responsibilities, and remedies. DOJ filed a

civil antitrust action in October to block the equity investment agreement

between Northwest and Continental and amended its complaint against

the revised agreement in December. DOT has the authority to prevent

unfair, deceptive, or anticompetitive practices, and its statute lists the

avoidance of unreasonable concentration in the airline industry as a public

interest factor to be considered in its decision-making. Under authority

provided by a new law, DOT has imposed waiting periods for certain

aspects of the Northwest-Continental alliance.41 Although it does not have

the authority to preapprove an alliance, DOT can seek to stop specific

anticompetitive practices.

DOJ Has Filed Legal

Action to Block Northwest

From Obtaining Voting

Control Over Continental

On October 23, 1998, DOJ filed a civil antitrust complaint to prevent

Northwest from acquiring or holding a majority of Continental’s voting

stock. 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. DOJ believed that the

alliance would substantially diminish both airlines’ incentives to compete

against each other and would cause consumers to pay higher prices and

receive lower-quality service in some markets.

DOJ has specific authority to review mergers or stock acquisitions before

they take place under the Hart-Scott-Rodino Act to see whether they

violate antitrust laws, and it has general authority to review alliances

under the Sherman Antitrust Act and the Clayton Act. Under the

Hart-Scott-Rodino Act, an acquisition of voting securities above a set

monetary amount must be reported to DOJ for prior review. DOJ has the

authority to institute civil or criminal proceedings under the Sherman Act

if a merger or acquisition may restrain competition or is an attempt to

monopolize a particular market.42 In addition, DOJ may bring a civil action

under the Clayton Act if a merger or acquisition may substantially lessen

competition in a relevant market or tend to create a monopoly.43 If DOJ

41P. L. 105-277, division C, title I, sec. 110(f) (1998).

4215 U.S.C. §§ 1-7.

4315 U.S.C. §§ 12-27.

Page 30 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

believes any agreement is anticompetitive in whole or in part, it may seek

to block the agreement in federal court.

DOJ has been reviewing the Northwest-Continental alliance since it was

first announced in January 1998, under the Hart-Scott-Rodino process.

Under the Hart-Scott-Rodino Act, an acquisition of voting securities above

a set monetary amount must be reported to DOJ44 for review prior to the

merger. 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. DOJ alleged that the effects of the alliance might be to substantially

lessen competition in interstate trade and commerce in violation of the

Clayton Act and to unreasonably restrain trade in violation of the Sherman

Act. According to the complaint filed by DOJ, Northwest’s acquisition of an

equity stake and controlling interest in Continental would reduce

Continental’s incentive to compete aggressively against Northwest. As a

result, consumers would pay higher prices and receive lower-quality

service in markets dominated by Northwest and Continental. In addition,

according to the complaint, consumers would lose the benefits of new,

competitive entry by Continental against Northwest in the future and of

potential competition in other markets.

DOJ did not seek a restraining order to stop all aspects of the alliance from

moving forward. While it filed a complaint against the alliance’s

investment or stock acquisition agreement, it did not address the

code-sharing alliance and frequent flyer agreements. In December 1998,

Northwest and Continental proceeded with their alliance under a modified

arrangement. For example, they said that they would not introduce

code-sharing on flights between each other’s hubs, where both airlines

currently compete, and announced that Northwest would acquire less than

half of the voting control of Continental’s stock. DOJ responded to the

revised agreement between Northwest and Continental by filing an

amended complaint on December 18, 1998. DOJ alleged that despite the

amended agreement, Northwest could still own more than 50 percent of

the fully diluted voting power over Continental.45 As a result, DOJ alleged

that consumers would likely still be harmed in the markets dominated by

44DOJ and the Federal Trade Commission have concurrent jurisdiction over Hart-Scott-Rodino matters

and the Clayton Act. DOJ has jurisdiction over airline alliances and the airline industry in general

because of an exemption in the Federal Trade Commission Act.

45According to DOJ’s amended complaint, notwithstanding the Nov. amendment to the Investment

Agreement between Northwest and Air Partners, L.P., Northwest separately entered into another

agreement on Mar. 2, 1998, with Barlow Investors III, LLC, to purchase approximately 5 percent of the

voting power over Continental to ensure that Northwest would own over 50 percent of the fully diluted

voting power over Continental.

Page 31 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

Northwest and Continental. DOJ has also indicated that it has competitive

concerns about certain specific aspects of the alliance between the airlines

and that its investigation of these aspects of the alliance continues.

According to DOJ officials, Northwest and Continental have 60 days from

the date of DOJ’s filing to respond. During that period, however, the parties

may also file legal motions on various subjects, such as the procedural

schedule.

DOJ has also indicated that it is looking at proposals for the other two

alliances, as well as the potential impact of the alliances on the entire

airline industry. Without detailing its ongoing reviews, it stated that its

analyses of the three alliances under the Sherman and Clayton acts’

authorities will follow an approach similar to that found in the Merger

Guidelines, which are applied to a traditional merger. Under these

guidelines, DOJ uses a five-part analytical process. First, DOJ defines the

markets in which the partners operate and determines whether they are

actual or potential competitors. DOJ testified before the House Committee

on the Judiciary on May 19, 1998, that the greatest threat to competition

comes when two of very few airlines that compete in a market enter into a

code-sharing agreement in that market. DOJ stated that it is concerned

about the effect on competition any time two of very few airlines in a

market act jointly. Second, DOJ examines aspects of the agreement that

may affect competition—for example, whether the partners’ capacity,

scheduling, and pricing decisions will remain independent. Third, DOJ

considers the extent to which new competitors are likely to enter the

market in response to anticompetitive behavior by the alliance partners.

Fourth, DOJ examines the operational efficiencies or other benefits that

may be generated by the agreement. Finally, DOJ considers whether one of

the partners is likely to exit a market because of financial considerations if

the alliance does not occur. After completing these parts, DOJ attempts to

balance all of the factors in deciding whether the alliance raises any

antitrust concerns. DOJ officials told us that they are under no timetable for

their antitrust review of the United-Delta and American-US Airways

alliances.

If DOJ has concerns, it usually attempts, before bringing a suit, to negotiate

a consent agreement that will restructure the transaction to remedy the

competitive harm. DOJ pointed to its recommendations to DOT for the

international code-sharing arrangements between American and British

Airways and American and the TACA group as an indication of the types of

solutions that could be used domestically. In its recommendations to DOT

on these international alliances, DOJ outlined several possible solutions,

Page 32 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

including slot and/or market-specific divestitures to allow greater

opportunity for new entry and carve-outs to eliminate certain city-pairs

from an alliance where two airlines serve overlapping markets.

DOT Can Delay Alliances

but Has No Preapproval

Authority Unless a Change

in Ownership Occurs

DOT is authorized to impose waiting periods on proposed alliances

involving major U.S. airlines but has no authority to preapprove domestic

airline alliances, except to conduct a fitness review when a change in

ownership occurs. However, once an alliance is in place, DOT has the

authority to prohibit unfair methods of competition in the airline industry,

which it can use in reviewing the alliances.

DOT derives its authority to review proposed alliances from several

statutory sources. DOT can review a proposed alliance under its

certification and fitness procedures. However, once an alliance is in place,

DOT can challenge it under its authority to prohibit unfair methods of

competition and unfair and deceptive practices.46 In addition, DOT’s

authorizing statute specifies that DOT should consider such policy matters

as preventing unfair, deceptive, and predatory practices and avoiding

unreasonable industry concentration and excessive market domination in

carrying out its duties.47 Furthermore, under new legislation passed in

October 1998, DOT has the authority to impose an initial 30-day waiting

period on certain joint ventures between major air carriers, which it may

extend another 150 days for such joint venture agreements involving

code-sharing.48 This authority of DOT’s does not limit DOJ’s authority to

enforce the antitrust laws.

DOT officials said they have focused their efforts to date on the

Northwest-Continental alliance and on whether it meets fitness

requirements.49 DOT’s fitness procedures include looking at U.S. citizenship

requirements for the airlines involved, as well as their financial statements

and safety records. Only the Northwest-Continental alliance is subject to

these requirements because it alone is proposing a change in ownership

that requires that a new owner’s fitness be determined.50 As of

4649 U.S.C. § 41712.

47See 49 U.S.C. §§ 40101(a)(9), (10), and (12).

48P.L. 105-277, § 110(f). The joint ventures subject to this waiting period include only those entered into

by a major airline after Jan. 1, 1998, that involve code-sharing, certain leasing arrangements, frequent

flyer programs, and certain other cooperative working arrangements.

4949 U.S.C. § 41102.

5014 C.F.R. § 204.5.

Page 33 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

December 31, 1998, DOT’s fitness determination was ongoing. 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.

Although DOT does not have the authority to preapprove an alliance, it

could institute an administrative enforcement proceeding if it determined

that some aspect of an alliance or the alliance itself amounted to an unfair

method of competition.51 DOT did not object to previous domestic

alliances—Continental-America West and Northwest-Alaska—because it

did not find them to be anticompetitive. As for its review of the

United-Delta and American-US Airways alliances, a DOT official said the

Department has received some information from the airlines on their

frequent flyer agreements and certain other matters. A DOT official said

that the Department will request additional information if it decides the

information received is not sufficient and if the airlines propose to extend

their alliances to include code-sharing. DOT will coordinate with DOJ in

reviewing these alliances.

Agency Comments We provided copies of a draft of this report to DOT and DOJ for their review

and comment. We met with DOT officials from the Office of the Secretary,

including the Deputy Assistant Secretary for Aviation and International

Affairs and the Special Counsel. These officials indicated that the report

provides a useful and constructive discussion of issues presented by

alliances among airlines. They indicated that because DOT is reviewing

each of these alliances, it is not at liberty, at this time, to provide specific

comments on the potential effects of the alliances discussed in the draft

report. Nonetheless, they indicated that DOT’s authority over these three

alliances is not as broad as the draft report might have led some readers to

believe. DOT noted that it could challenge an alliance after it is in place,

citing the Department’s authority to prohibit unfair methods of

competition and unfair and deceptive practices. DOT provided a number of

specific and technical comments that addressed this and other issues; we

incorporated these comments as appropriate. We also held discussions

with DOJ officials, including the Chief of the Transportation, Energy, and

Agriculture Section, within DOJ’s Antitrust Division. In general, DOJ found

the report to be a useful and constructive discussion of the issues

presented by the airline alliances, and it provided technical corrections,

5149 U.S.C. § 41712.

Page 34 GAO/RCED-99-37 Domestic Airline Alliances
B-280704 

which we incorporated into the report as appropriate. DOJ asked that we

more clearly distinguish our use of the term “alliance,” (which DOJ applies

only to code-sharing agreements, frequent flyer agreements, and similar

arrangements between separate airlines) from arrangements in which an

equity share is involved. We did so by specifically noting when the equity

investment agreement was at issue. We also provided each participating

airline with a copy of the section of the report describing its alliance

agreement or proposal. The airlines generally agreed with our

characterization of their arrangements and offered technical corrections,

which we incorporated into the report as appropriate. Some airlines

suggested other methods we might use to determine markets and market

shares. In discussing our scope and methodology (see app. II), we point

out that there may be several ways to define markets in the airline

industry, and we carefully describe what we did and why. We did not share

our analysis of the beneficial or harmful effects of the alliances with the

airlines.

As arranged with your offices, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 10 days after the

date of this letter. At that time, we will send copies to the Secretary of

Transportation; the Attorney General; the Director, Office of Management

and Budget; and other interested parties. We will send copies to others

upon request.

If you have any questions, please call me at (202) 512-2834. Major

contributors to this report are listed in appendix VI.

John H. Anderson, Jr.

Director, Transportation Issues

Page 35 GAO/RCED-99-37 Domestic Airline Alliances
Contents

Letter 1

Appendix I 

Airlines’ Market

Shares of Domestic

Passenger

Traffic—1997

40

Appendix II 

Scope and

Methodology

41

Appendix III 

Potential Beneficial

and Harmful Effects

on Consumers of the

Alliance Initially

Proposed by United

Airlines and Delta Air

Lines

46

United-Delta Alliance With Code-Sharing Would Have New

Destinations and Frequencies

46

If the Partners Did Not Compete, a United-Delta Code-Sharing

Alliance Could Harm Consumers

49

Appendix IV 

Potential Beneficial

and Harmful Effects

on Consumers of a

Code-Sharing Alliance

Between American

Airlines and US

Airways

54

A Code-Sharing Alliance Between American and US Airways

Would Include New Destinations and Frequencies

54

If the Partners Did Not Compete, an American-US Airways

Code-Sharing Alliance Could Harm Consumers

55

Page 36 GAO/RCED-99-37 Domestic Airline Alliances
Contents

Appendix V 

Implementation of All

Three Alliances as

Code-Sharing

Arrangements Could

Substantially Affect

Competition

59

Consumers Could Realize Some Benefits If All Three Alliances

Were to Proceed as Code-Sharing Agreements

60

If Partners Did Not Compete, Code-Sharing Alliances Could Harm

Consumers

60

Major Contributors to

This Report

65

Related GAO Products 67

Tables Table 1: GAO’s Analysis of Airport Pairs That Would Receive

New On-Line Service Through Single or Double Connections

Under a Northwest-Continental Alliance

18

 Table 2: Effect of the Northwest-Continental Code-Sharing

Alliance on Market Dominance

27

 Table III.1: GAO’s Analysis of the Benefits of a United-Delta

Code-Sharing Alliance: Airport Pairs That Would Receive New

On-Line Service Through Single or Double Connections

48

 Table III.2: Potential Effect of a United-Delta Code-Sharing

Alliance on Market Dominance

53

 Table IV.1: GAO’s Analysis of Benefits Under an American-US

Airways Code-Sharing Alliance: Airport Pairs That Would Receive

New On-Line Service Through Single or Double Connections

55

 Table IV.2: Potential Effect of an American-US Airways

Code-Sharing Alliance on Market Dominance

58

 Table V.1: Alliance Partners’ Combined Market Share at

Slot-Controlled and Gate-Constrained Airports

63

Figures Figure 1: Illustration of a Hypothetical End-to-End International

Alliance

5

Figure 2: Percentage of Each State’s Departing Passengers That

the Northwest-Continental Alliance Would Have Carried

10

Page 37 GAO/RCED-99-37 Domestic Airline Alliances
Contents

Figure 3: Percentage of Each State’s Departing Passengers That

the Originally Proposed United-Delta Alliance Would Have

Carried

12

Figure 4: Percentage of Each State’s Departing Passengers That a

Code-Sharing Alliance Between American and US Airways Would

Have Carried

14

Figure 5: Number of Markets and Passengers Subject to

Potentially Decreased Competition Under the

Northwest-Continental Alliance

24

Figure III.1: Number of Markets and Passengers Subject to

Potentially Decreased Competition Under a United-Delta

Code-Sharing Alliance

51

Figure IV.1: Number of Markets and Passengers Subject to

Potentially Decreased Competition Under an American-US

Airways Code-Sharing Alliance

56

Figure V.1: Number of Markets and Passengers Subject to

Potentially Decreased Competition Under Three Code-Sharing

Alliances

61

Abbreviations

DOJ Department of Justice

DOT Department of Transportation

GAO General Accounting Office

HHI Herfindahl-Hirschmann Index

Page 38 GAO/RCED-99-37 Domestic Airline Alliances
Page 39 GAO/RCED-99-37 Domestic Airline Alliances
Appendix I 

Airlines’ Market Shares of Domestic

Passenger Traffic—1997

Airline or alliance

1997 domestic traffic

(total number of

passengers enplaned, in

millions)a

1997 market share

(percentage of total

passengers)c

Northwest 47.1 8.5

Continental 34.2 6.2

Northwest-Continental 81.3 14.7

Delta 97.3 17.6

United 72.9 13.2

Delta-United 170.2 30.8

American 66.1 12.0

US Airways 57.4 10.4

American-US Airways 123.5 22.3

Alliance subtotal 375.0 67.8

America West 17.9 3.2

Alaska 11.5 2.1

Southwest 56.1 10.1

Trans World 22.2 4.0

Other major airlines

subtotal 107.7 19.5

Other large airlinesb 70.2 12.7

Totalc 552.8 100.0

a“Passenger enplanements” represent the total number of passengers boarding an aircraft. Thus,

for example, a passenger that must make a single connection between his or her origin and

destination counts as two enplaned passengers because he or she boarded two separate flights.

Other measures, such as the number of domestic origin and destination passengers or revenue

passenger miles flown during a year, are sometimes used to illustrate the relative sizes of airlines.

We believe that using these measures would produce few differences from the results shown in

this table.

bThis category includes such airlines as Reno, Midwest Express, and AirTran, along with the

larger “regional” commuter airlines such as Atlantic Southeast, Continental Express, Horizon Air,

Mesa, and Simmons. We are excluding other smaller commuter airlines because they tend not to

compete for the same passengers as the larger airlines and carried only 1.5 percent of the total

number of passengers that flew within the United States in 1997.

cPercentages may not sum to subtotals because of rounding.

Source: GAO’s analysis of DOT’s data.

Page 40 GAO/RCED-99-37 Domestic Airline Alliances
Appendix II 

Scope and Methodology

At the request of the Chairman of the Senate Committee on Commerce,

Science, and Transportation and the Chairman of that committee’s

Subcommittee on Aviation, we addressed three issues relating to the

alliances among six of the largest U.S. airlines. 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.

To determine the status of each of the alliances, we interviewed officials

from each of the participating airlines, along with officials from DOJ and

DOT. Because each of the alliances changed somewhat during the

assignment, we maintained contact with officials from the airlines

involved. We reviewed publicly available documentation that described

the structure of each alliance and asked each airline about the

involvement of its regional “feeder” commuter partners, international

code-sharing partners, and other domestic code-sharing airlines (in the

case of Continental and Northwest).52 To ensure that we understood the

structure of each alliance, we also sought explanations from the partners

on how they would share revenue in a variety of situations (for example,

when one airline would sell a ticket to a passenger for a trip that was to

involve both the main alliance airline and one of its regional partners.)

To determine the extent of the service benefits associated with the

alliances, we examined the airlines’ statements on their routing and

connection benefits. To evaluate these statements, we analyzed airline

schedule information for May 1998. To obtain these data for this report, we

contracted with BACK Associates, Inc., an aviation consulting firm. BACK

Associates, Inc., used information on flight schedules submitted by all U.S.

airlines to the Official Airline Guide Worldwide and prepared computer

programs to produce tables to our specifications. We based these

specifications on information submitted by the airlines on the scope of

their alliances. We also imposed some limiting assumptions that our

discussions with industry experts led us to believe were reasonable. We

adopted these to prevent our consulting firm’s computer programming

52Some of the alliance airlines—notably Continental and Northwest—said that they intended to extend

code-sharing to their international partners. United and Delta officials said that if their alliance had

proceeded, they would have liked to extend it to their international partners as well, but would wait

for the resolution of a number of issues related to their existing alliances within Europe. (The

European Union is reviewing all international code-sharing agreements involving European and U.S.

airlines and proposing various changes in these business arrangements.) Because of differences in the

extent to which the alliances have announced how their international partners would be integrated, we

limited our analysis to the effects on U.S. domestic travel only.

Page 41 GAO/RCED-99-37 Domestic Airline Alliances
Appendix II 

Scope and Methodology

from identifying what would seem to be obviously unreasonable flight

patterns (e.g., flights between New York and Chicago that would connect

through Los Angeles). These included (1) requiring potential connections

between flights to fall between 30 and 150 minutes of one flight’s

scheduled arrival at the connecting airport and the next flight’s scheduled

departure53 and (2) limiting the distance that possible flight segments

might cover (“circuity”) to 125 percent of the distance between a flight’s

origin and destination, unless the flight connected through one of the

airline’s hubs, in which case we allowed up to 150 percent of the distance.

Furthermore, with possible new double-connection markets, we limited

the number of potential connection points by requiring connections to be

made through the airlines’ hubs. Because we were principally interested in

the impact of the alliances on the U.S. domestic market, we excluded

international destinations (including U.S. territories). We did not review

BACK Associates, Inc.’s programming but verified the logic of that

programming and discussed with company officials the approach that they

used. This analysis provided information on the extent to which the

alliances may produce actual new “on-line” connections or service

opportunities for passengers. Finally, we examined whether competitors

provided equivalent, superior, or inferior service to these destinations.54

To estimate the number of passengers who might benefit from the new

on-line service, we then matched the new on-line origins and destinations

against the 1997 passenger traffic in these markets. We did not

independently assess the airlines’ basis for stating that their improved

service options would generate additional traffic. We also did not attempt

to quantify the benefits of the reciprocal relationships among frequent

flyer programs and clubs that would be established under the alliances.

To examine the potential harm from the alliances, we determined the

extent to which each airline’s routes overlap with those of its alliance

partner by analyzing 1997 data on the 5,000 busiest domestic airport-pair

origin and destination markets or markets for air travel between two

airports. These 5,000 markets accounted for over 90 percent of the total

396 million U.S. domestic passengers in 1997. To obtain these data for this

53On the basis of information provided by the alliance airlines, we assumed that the alliance partners

would make minimal changes to their schedules. Airline officials told us that larger changes would

disrupt their entire systems.

54Equal service means that competing airlines currently offer service that matches the alliance’s

potential single- or double-connection service. Superior service includes current direct and nonstop

service by competitors between airports that the alliance could serve at best on a single-connection

basis; and direct, nonstop, or single-connection service by competitors between airports that the

alliance could serve at best on a double-connection basis. Inferior service means that competing

airlines currently offer no service or double-connection service between airports where the alliance

could offer single-connection service, or no service where the alliance would provide

double-connection service.

Page 42 GAO/RCED-99-37 Domestic Airline Alliances
Appendix II 

Scope and Methodology

report, we contracted with Data Base Products, Inc., which used

information submitted by all U.S. airlines to DOT for 1997 and produced

various tables to our specifications. Data Base Products, Inc., used three

different data sources from DOT: the Origin and Destination Survey (O&D)

based on a 10-percent sample of tickets containing itinerary and pricing

information; T-100 on-flight data;55 and 298C T-1 data, which supplement

the T-100 data with data on commuter and small certified air carriers. Data

Base Products, Inc., made certain adjustments to these data, such as

correcting recognized deficiencies in the air carriers’ O&D data

submissions, which have not met DOT’s standard of 95-percent accuracy.

For example, Data Base Products, Inc., used the T-100 and the 298C T-1

data to obtain more accurate passenger counts. We did not review the

company’s programming but did discuss with company officials the

adjustments that they made.

We examined whether the formation of alliances might reduce

competition within a given airport-pair market under various assumptions

about how large a market share an alliance would need to be considered

an “active competitor.” In our testimony on June 4, 1998, which reported

our preliminary results on the effects of the proposed alliances, we

defined a competitor as one that carried at least 5 percent of the enplaned

passengers in a particular market.56 DOT uses 10 percent as a minimum

market share. Our conversations with DOT officials, some airline officials,

and industry experts convinced us that 10 percent better represented a

competitor in the market and also eliminated some potential problems in

the quality of the data that are reported to DOT. For all these reasons, we

decided to use DOT’s minimum. To provide additional insight into markets

where an alliance may exert additional or disproportionate market

influence, we then further refined our analysis to focus on those markets

where an alliance would have a dominant share—more than 50 percent.

Various studies support the finding that airlines holding dominant shares

of a market reap disproportionate amounts of the revenue available in that

market, because they are able to provide far more frequent service, which

is important for time-sensitive, high-yield business travelers. To a limited

extent, the harmful effects of having fewer competitors in some markets,

5514 C.F.R. 241 prescribes the collection of scheduled and nonscheduled service traffic data from the

domestic and international operations of U.S. air carriers. The schedules submitted by the air carriers

to DOT under this requirement collect nonstop segment data and on-flight market information by

equipment type and by service class. This report is known as the “T-100” report.

56See Aviation Competition: Proposed Domestic Airline Alliances Raise Serious Issues,

(GAO/T-RCED-98-215, June 4, 1998). Our use of 5 percent as a minimum market share to determine the

presence of a competitor is supported by some researchers, notably Belobaba and Van Acker in

“Airline Market Concentration: An Analysis of U.S. Origin—Destination Markets,” Journal of Air

Transport Management (1994).

Page 43 GAO/RCED-99-37 Domestic Airline Alliances
Appendix II 

Scope and Methodology

assuming the alliance partners would not compete, could be mitigated by

an increase in competition in other markets.

We defined a market as one involving airport pairs, rather than city pairs,

because certain groups of passengers—particularly business

travelers—who may need to make connections to reach their final

destination do not regard various airports as substitutes. For example,

many, if not most, business travelers going to and from Chicago, would not

regard Midway Airport as an adequate substitute for O’Hare. This market

definition is in line with the analysis of international airline alliances that

appeared in DOJ’s comments on the proposed code-sharing alliance

between American Airlines and British Airways.57

In our analysis of markets that lost or gained a competitor with the

formation of an alliance, we determined the significance of this loss or

gain by looking at changes in market concentration. To do this, we used an

index used by DOJ, the Herfindahl-Hirschmann Index (HHI), in which higher

scores reflect greater increases in market dominance. The HHI is calculated

by summing the squares of the individual market shares of all participants.

We calculated changes in the HHI in the markets where a competitor was

lost and where a competitor was added, as well as the changes in the

range of HHIs for these markets. We recognize that the HHI may provide

somewhat misleading results when applied to the airline industry but

believe that it is nonetheless useful in suggesting the change in the amount

of concentration over time.

To determine the cumulative effect that all three alliances might exert on

the U.S. traveling public, we analyzed the routings and traffic

simultaneously. This analysis accounted for various offsetting effects that

the alliances might produce and explains why the total number of

passengers potentially benefiting from or harmed by the three alliances is

not simply the sum of those affected by the three individual alliances. For

example, the analysis of a single alliance might suggest that if two partners

did not continue to charge competitive prices, then a particular

airport-pair market might lose a competitor, and that loss, according to

1997 origin and destination information, would affect some number of

passengers. However, that same airport-pair market might conceivably

benefit from another alliance, whose formation would create a new active

57United and American disagreed with our definition of the relevant markets, arguing in favor of city

pairs. We recognize that city pairs can also be used to analyze various air markets. At the same time,

while some airports may serve as substitutes for other airports in the same community, they are often

not perfect substitutes. Only an extensive analysis of the traffic of each airline at each of these airports

would reveal the extent to which the airports could serve as substitutes.

Page 44 GAO/RCED-99-37 Domestic Airline Alliances
Appendix II 

Scope and Methodology

competitor. Consequently, the net effect of both alliances might be to

produce the same number of competitors in the market, and the total

number of passengers affected would be the difference between the two.

Because of technical and computing limitations, we were unable to

analyze the cumulative benefits that implementing all three alliances’

would have had on flight connections, flight frequencies, and the number

of new on-line destinations.

We interviewed officials from DOT, DOJ, consumer groups, a flight

attendants’ union, and each of the six major airlines contemplating

domestic alliances. For the remaining nonaligned major U.S. passenger

airlines, we either interviewed officials or obtained their views through

published speeches or news releases.

We also conducted interviews with recognized industry experts. These

included academic experts recognized nationally for their expertise in

airline competition work (including the effects of various cooperative

ventures, such as frequent flyer programs); individuals with expertise in

particular aspects of the industry, such as ticketing and computer

reservation system issues; and several Wall Street airline financial

analysts. We asked for their views on how the alliances might affect

domestic airline competition, participating airlines, and consumers. We

selected these individuals on the basis of their published work on the

industry.

To determine the authority of DOT and DOJ to review the domestic

alliances, we reviewed the statutory basis for each department’s work,

including DOJ’s Merger Guidelines, and we interviewed officials at both DOT

and DOJ. We also reviewed the complaint filed by DOJ against Northwest

and Continental, as well as the public responses provided by these airlines.

We conducted our work from May 1998 through December 1998 in

Washington, D.C., and Seattle, Washington, in accordance with generally

accepted government auditing standards.

Page 45 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

The current alliance between United and Delta involves reciprocity

between their frequent flyer programs. We analyzed the potential

beneficial and harmful effects of such a structure in the body of this

report. However, the alliance between United and Delta could incorporate

code-sharing in the future. As a result, in this appendix, we analyzed this

alliance assuming a code-sharing relationship. Our assumption is based on

discussions with various industry experts, who maintain that if the

code-sharing alliance between Northwest and Continental is implemented,

the other major airlines may move toward some sort of code-sharing

alliance as a competitive response. If the United-Delta alliance does

proceed with code-sharing, the potential for beneficial and harmful effects

on consumers could be significant.

United-Delta Alliance

With Code-Sharing

Would Have New

Destinations and

Frequencies

When United and Delta originally proposed a code-sharing alliance, they

said that it responded to their customers’ wishes and would benefit

consumers. The airlines explained that code-sharing would create new

on-line service, providing consumers with more flight frequencies and

improving connections. A comparison of the airlines’ estimates of a

code-sharing alliance’s benefits and our analysis of these benefits follows.

Originally Proposed

United-Delta Alliance

Would Have Provided More

On-Line Destinations for

Travelers

According to United and Delta, a code-sharing alliance such as they

originally proposed would create new service in many U.S. cities. The

airlines reported that, under such an alliance, Delta would gain access to

19 domestic points that it does not now serve and United would gain

access to 37 such points. In particular, 14 small and medium-sized cities,

such as Bangor, Maine, and Santa Barbara, California, would gain new

service. In total, the airlines said, if a code-sharing alliance were extended

as originally planned to the airlines’ commuter partners, Delta would

extend its on-line network to 108 new domestic points and United to 75

new domestic points. Thus, multiplying the possible new destinations

together, the airlines said that 8,100 domestic city pairs could gain new

on-line service as a direct result of a code-sharing alliance. For example, a

passenger in Lincoln, Nebraska, could fly on-line to Sarasota, Florida, for

the first time on either United or Delta. The airlines said they expected

that on-line fares would be lower than interline fares, which are generally

the sum of the fares on each airline’s segments.

Our analysis showed that a code-sharing alliance between United and

Delta would serve fewer new airport pairs than the airlines estimated.58

58See app. II for additional information on our methodology.

Page 46 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

Applying the same criteria that we used for our analysis of the

Northwest-Continental alliance, we first found that such an alliance could

create on-line single-connection service in 157 markets that served

2.6 million passengers in 1997. In 86 of these markets, a United-Delta

code-sharing alliance would produce superior service to that already

offered. (In 78 of these markets, the United-Delta service would be

improved on-line single-connection service compared with existing

double-connection service; competitors provided existing

double-connection service in the other 8 markets.) However, in 71

markets, competing airlines’ existing service would be superior or at least

equal to that which the alliance would provide. We also found that a

United-Delta code-sharing alliance could create 50 new double-connection

markets. However, either one of the alliance partners or a competitor

already provided on-line service to each of these markets. Although the

United-Delta alliance would provide superior service to that offered by

competitors in 9 markets, other competing airlines already provided

superior or equal service in 41 of these markets. Table III.1 provides our

detailed analysis of the new on-line benefits that consumers could expect

from this code-sharing alliance.

Page 47 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

Table III.1: GAO’s Analysis of the Benefits of a United-Delta Code-Sharing Alliance: Airport Pairs That Would Receive New

On-Line Service Through Single or Double Connections

Total markets and average number of

passengers per day who would

receive new United-Delta service

Type of new on-line service

Number of

markets

Average number

of passengers

per day

per market

in 1997

Number of

markets in which

competing

airlines provide

superior servicea

Number of

markets in which

competing

airlines provide

equal serviceb

Number of

markets in which

competing

airlines provide

inferior servicec

Single-connection 157 46 20 51 86

Double-connection 50 6 33 8 9

aSuperior service includes current direct and nonstop service by competitors between airports

that a United-Delta code-sharing alliance could serve at best with single-connection service; and

direct, nonstop, or single-connection service by competitors between airports that United-Delta

could serve at best with double-connection service. Direct service differs from nonstop service in

that a “direct” flight makes a scheduled stop between an origin and a destination, but passengers

flying between the origin and destination are not required to change planes, while a nonstop flight

between an origin and a destination makes no scheduled stops en route.

bEqual service means that competing airlines currently offer service that matches a United-Delta

code-sharing alliance’s potential single- or double-connection service.

cInferior service means that competing airlines currently offer (1) no service or double-connection

service between airports where a United-Delta code-sharing alliance could offer

single-connection service or (2) no service between airports where a United-Delta code-sharing

alliance could provide double-connection service.

Source: GAO’s analysis of information provided by BACK Associates and Data Base Products,

Inc.

A United-Delta

Code-Sharing Alliance

Would Provide More

Frequencies and Routings

According to airline officials, a code-sharing alliance would provide more

flight frequencies and better connections to 81 U.S. cities. For example,

United currently offers one daily nonstop round-trip flight between Atlanta

and San Francisco, and Delta offers six flights in the same market. Under a

code-sharing alliance, consumers could choose among seven daily nonstop

flights as if they were all Delta or all United flights. United and Delta

officials said that combining each of their nonstop flights would result in a

total of 4,600 new daily flight frequencies, affording over 2.3 million

passengers additional nonstop frequency options. Moreover, the airlines

projected that these additional nonstop frequency options would attract

new passengers to their alliance.59 Our limited analysis of flight

59The alliance projected 750,000 new passengers. Experts we consulted, however, said that the model

used was more appropriate for determining the direction of a change rather than the absolute amount

of a change. Moreover, the model assumed that no competing airline would make a competitive

response, which might decrease the projected number of passengers.

Page 48 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

frequencies suggests that the alliance could result in new, possibly

improved, route options.

If the Partners Did

Not Compete, a

United-Delta

Code-Sharing Alliance

Could Harm

Consumers

Because of the size of United’s and Delta’s respective route networks, a

code-sharing alliance would produce more overlapping domestic routes

than the other alliances and could harm many travelers if the airlines did

not compete. United and Delta officials stated that their alliance would

prove beneficial rather than harmful because each airline would remain

independent and would continue to compete with the other.

According to United and Delta, neither airline would coordinate with the

other on operations, such as setting fares and schedules, managing

revenue, or acquiring aircraft. Without coordination in these areas, they

said, the potential for adversely affecting competition is greatly

diminished. According to both United and Delta, if they had a code-sharing

agreement, only the airline that would actually provide transportation to a

passenger on a given flight segment would receive revenue from that

passenger.60 Each airline would establish fares separately for the seats it

sells. If a passenger were to fly one segment on United and another on

Delta, the revenue would be prorated according to a standard agreement.

The airlines had also proposed that the “marketing carrier” (i.e., the airline

selling the ticket) would receive a cost-based distribution fee, roughly

equivalent to a travel agent’s fee, for tickets sold under its code. Thus,

company officials said, the best way for each airline to maximize its

revenue and profits would be to sell as many seats as possible on its own

aircraft.

We interviewed industry experts when United and Delta were still

planning a code-sharing alliance. These experts maintained that such an

alliance would likely harm consumers by reducing competition between

the two airlines, eventually leading to higher fares. They said that over

time, airlines in this type of alliance would jointly identify the markets

where it would make financial sense for them to reduce or eliminate

capacity, especially those markets where the partner airline had more

flights. They said that because each airline’s management would retain a

strong incentive to maximize revenue and profit, each would benefit by

reducing competition with its alliance partner. However, they added that

detecting the exact point at which anticompetitive behavior is occurring,

or could be attributed to the existence of the alliance rather than to

60Because of the airlines’ concerns about confidentiality, we were unable to conduct an independent

review of the agreement.

Page 49 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

independent business decisions, is extremely difficult. This same

reasoning—that alliance partners would be unlikely to compete in markets

that each served—was used by United when it filed a formal statement

opposing American’s alliance with the TACA group.61

A United-Delta

Code-Sharing Alliance

Would Reduce

Competition in Shared

Markets

If the airlines established a code-sharing alliance and competed less with

each other, approximately 27.8 million passengers in 550 distinct markets

could be harmed through reductions in service and increases in airfares.

Figure III.1 shows the number of markets that could be adversely affected

by a code-sharing alliance if the two airlines did not continue to compete.

The figure shows, among other things, that in 58 markets that served

4.3 million passengers in 1997, the alliance would become the only active

competitor with a market share of more than 10 percent.

61Comments of United Airlines, Inc., on American Airlines, Inc., et al. and the TACA Group’s Reciprocal

Code-Sharing Services Proceeding, Docket OST-96-1700-72 (Sept. 11, 1997). The TACA group

comprises the national airlines for Guatemala, Panama, Costa Rica, Nicaragua, Honduras, and El

Salvador.

Page 50 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

Figure III.1: Number of Markets and

Passengers Subject to Potentially

Decreased Competition Under a

United-Delta Code-Sharing Alliance

 2 to 1 3 to 2 4 to 3 5 to 4 6 to 5 0

25

50

75

100

125

150

175

200

225

250

0

1

2

3

4

5

6

7

8

9

10

11

Markets Passengers (millions)

2 to 1 3 to 2 4 to 3 5 to 4 6 to 5

Potential decrease in number of competitors

Number of markets

1997 passengers

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

In many of the markets where the number of active competitors would

decrease if the two airlines did not continue to compete with each other,

the changes in concentration would be significant.62 For example, in the

179 markets where the creation of a code-sharing alliance would decrease

the number of active competitors from three to two, the alliance would

become the largest carrier in 151 and the second largest carrier in the

remaining 28. These 179 markets served over 10.5 million passengers in

1997.

62The average change in the Hirschmann-Herfindahl Index (HHI) for these 550 markets is 1,208, with a

range of 235 to 4,470. This suggests that a United-Delta code-sharing alliance would substantially

increase concentration in certain markets.

Page 51 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

In some markets, the establishment of a code-sharing alliance between

United and Delta could have benefits that might, to some extent, mitigate

the harmful effects that the alliance might otherwise create. Specifically, at

airports where each airline alone has a relatively insignificant competitive

presence, a code-sharing alliance would create a larger, potentially

stronger entity, allowing it to compete more effectively against other

airlines. In 1997, United and Delta each had a limited share (i.e., less than

10 percent) in 143 of the top 5,000 markets that served 11 million

passengers during that year. However, under a code-sharing alliance, their

combined market share would exceed 10 percent, and the partnership

would constitute a new active competitor. Of these 143 markets, 59 are

currently dominated by one major airline, and a United-Delta code-sharing

alliance could increase competition for the 4.9 million passengers served

in these markets. Nevertheless, our analysis shows that the addition of the

alliance as an active competitor in these markets would make little overall

difference because the alliance would remain relatively small, especially

compared with other competitors.63

A United-Delta

Code-Sharing Alliance

Would Establish Dominant

Shares in Over 200 New

Markets

According to industry experts, if the partners of a code-sharing alliance

held a dominant share of the passenger traffic in shared (i.e., overlapping)

markets, they could more easily coordinate capacity and maximize

revenue, potentially harming passengers. Specifically, the partners could

choose to maximize revenue by raising fares in selected markets where

they hold a dominant share—thereby harming consumers in these

markets—even without increasing their market share overall. Table III.2

shows that a United-Delta code-sharing alliance would have more than a

50-percent market share in 1,218 of the top 5,000 airport-pair markets.

These 1,218 markets served more than 84 million passengers in 1997. The

alliance itself would add 213 markets (11.8 million passengers) to the 1,005

markets already currently dominated by either United or Delta.

63The average change in the HHI for the 143 United-Delta markets where the number of active

competitors would increase because of the alliance is 69, with a range of 1 to 193. This indicates that

the addition of the alliance as an active competitor would make relatively little overall difference in

these markets.

Page 52 GAO/RCED-99-37 Domestic Airline Alliances
Appendix III 

Potential Beneficial and Harmful Effects on

Consumers of the Alliance Initially Proposed

by United Airlines and Delta Air Lines

Table III.2: Potential Effect of a

United-Delta Code-Sharing Alliance on

Market Dominance

Number of markets with

more than 50-percent

market share

Number of

passengers, 1997

United 273 30,227,283

Delta 732 42,681,590

Alliance (new) 213 11,754,050

Total 1,218 84,662,923

Note: Market share represents the percentage of 1997 passenger traffic carried by each airline.

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

A United-Delta

Code-Sharing Alliance

Would Have the Potential

to Affect Operating and

Marketing Barriers to

Entry

At the nation’s slot-controlled and gate-constrained airports, a

United-Delta code-sharing alliance would not appreciably change the level

of concentration. Any potential harm to consumers would probably be

slight. For example, United’s 48.3-percent share of traffic at Chicago’s

slot-controlled O’Hare Airport and Delta’s 76.8-percent share of traffic at

Cincinnati’s gate-constrained airport would not be significantly affected by

the combination, since neither airline maintains a significant presence at

the other’s hub. At O’Hare, a code-sharing alliance’s share would increase

to 51.7 percent; at Cincinnati, it would increase to 77.9 percent.

Nonaligned airlines, consumer groups and one industry expert stressed

the adverse effect on competition that a code-sharing alliance such as that

originally proposed between United and Delta could exercise through

computer reservation systems. The alliance could gain a competitive

advantage through multiple listings of the same code-sharing flight on the

reservation screen, increasing the likelihood that the alliance’s flights

would be the first offered to the consumer.

Page 53 GAO/RCED-99-37 Domestic Airline Alliances
Appendix IV 

Potential Beneficial and Harmful Effects on

Consumers of a Code-Sharing Alliance

Between American Airlines and US Airways

For American Airlines and US Airways, as for United and Delta, we

assumed that their alliance could proceed to a partnership involving

code-sharing. Because officials from both airlines said that they would

implement code-sharing if the other two alliances moved forward with

code-sharing arrangements, our analysis of the alliance’s potential

beneficial and harmful effects assumes that they would do the same. With

code-sharing, the alliance could have significant effects—both positive and

negative—on consumers throughout the United States.

A Code-Sharing

Alliance Between

American and US

Airways Would

Include New

Destinations and

Frequencies

If American Airlines and US Airways ultimately decide to implement

code-sharing in a substantial number of markets, passengers could benefit

from more on-line destinations, better routes and connections, and more

flight frequencies. But because the alliance does not currently include

code-sharing between main American and main US Airways, the two

partners have not predicted any benefits.

An American-US Airways

Code-Sharing Alliance

Would Offer Consumers

More On-Line Destinations

We found that a code-sharing alliance between American and US Airways

could create new single- and double-connection markets. Because

American currently serves 55 airports from its hubs that US Airways does

not serve and US Airways serves 76 airports from its hubs that American

does not serve, the alliance could, in theory, provide on-line service in

4,180 new markets. However, many of these markets would require more

than two connections. When we eliminated these impractical routes,64 we

found that an American-US Airways code-sharing alliance could create 483

new single- or double-connection markets.

We found that such an alliance could create on-line single-connection

service in 166 markets that served 2.0 million passengers in 1997.65 In 47 of

these markets, the alliance would produce superior service to that already

offered by a competitor. However, in 119 markets, competing airlines’

existing service would be superior or at least equal to that created by the

alliance. We also found that an American-US Airways code-sharing

alliance could create 317 new double-connection markets. However, either

one of the alliance partners or a competitor already provided on-line

service to each of these markets. Although an American-US Airways

64See app. II for additional information on our methodology.

65See app. II for additional information on our methodology.

Page 54 GAO/RCED-99-37 Domestic Airline Alliances
Appendix IV 

Potential Beneficial and Harmful Effects on

Consumers of a Code-Sharing Alliance

Between American Airlines and US Airways

code-sharing alliance would provide superior service to that offered by

competitors in 3 markets, other competing airlines already provided

superior or equal service to 314 markets. Table IV.1 provides our detailed

analysis of the new on-line benefits that consumers could expect from this

alliance.

Table IV.1: GAO’s Analysis of Benefits Under an American-US Airways Code-Sharing Alliance: Airport Pairs That Would

Receive New On-Line Service Through Single or Double Connections

Total markets and average number of

passengers per day who would

receive new American-US Airways

service

Type of new on-line service

Number of

markets

Average number

of passengers per

day per market in

1997

Number of

markets in which

competing

airlines provide

superior servicea

Number of

markets in which

competing

airlines provide

equal serviceb

Number of

markets in which

competing

airlines provide

inferior servicec

Single-connection 166 34 24 95 47

Double-connection 317 7 271 43 3

aSuperior service includes current direct and nonstop service by competitors between airports

that an American-US Airways code-sharing alliance could serve at best with single-connection

service; and direct, nonstop, or single-connection service by competitors between airports that an

American-US Airways code-sharing alliance could serve at best with double-connection service.

Direct service differs from nonstop service in that a “direct” flight makes a scheduled stop

between an origin and a destination, but passengers flying between the origin and destination are

not required to change planes, while a nonstop flight between an origin and a destination makes

no scheduled stops en route.

bEqual service means that competing airlines currently offer service that matches an

American-US Airways code-sharing alliance’s potential single- or double-connection service.

cInferior service means that competing airlines currently offer (1) no service or double-connection

service between airports where an American-US Airways code-sharing alliance could offer

single-connection service or (2) no service between airports where an American-US Airways

code-sharing alliance could provide double-connection service.

Source: GAO’s analysis of information provided by BACK Associates and Data Base Products,

Inc.

If the Partners Did

Not Compete, an

American-US Airways

Code-Sharing Alliance

Could Harm

Consumers

Given the size of the partners’ respective route networks, a code-sharing

alliance between American and US Airways would produce much overlap

and could harm many travelers if, over time, the airlines did not continue

to compete as independent companies.

Page 55 GAO/RCED-99-37 Domestic Airline Alliances
Appendix IV 

Potential Beneficial and Harmful Effects on

Consumers of a Code-Sharing Alliance

Between American Airlines and US Airways

An American-US Airways

Code-Sharing Alliance

Could Potentially Reduce

Competition in Shared

Markets

If the current American-US Airways alliance moved to a code-sharing

arrangement, it could reduce competition in 260 of the top 5,000 markets.

These 260 markets served 13.3 million passengers in 1997. Moreover, such

an alliance could eliminate competition in 24 of the markets, which served

2.0 million passengers in 1997. Such an alliance could also decrease the

number of active competitors from three to two in 90 markets. Our

analysis shows that in 80 of these 90 markets, the alliance would become

the largest carrier, and in the remaining 10 markets, it would become the

second largest carrier (see fig. IV.1).66

Figure IV.1: Number of Markets and

Passengers Subject to Potentially

Decreased Competition Under an

American-US Airways Code-Sharing

Alliance

 2 to 1 3 to 2 4 to 3 5 to 4 6 to 5 0

25

50

75

100

125

150

175

200

225

250

0

1

2

3

4

5

6

7

8

9

10

11

Markets Passengers (millions)

2 to 1 3 to 2 4 to 3 5 to 4 6 to 5

Potential decrease in number of competitors

Number of markets

1997 passengers

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

66The average change in the Hirschmann-Herfindahl Index (HHI) for these 260 markets is 1,217, with a

range from 228 to 4,477. This suggests that an American-US Airways code-sharing alliance would

significantly increase concentration in a number of origin and destination markets.

Page 56 GAO/RCED-99-37 Domestic Airline Alliances
Appendix IV 

Potential Beneficial and Harmful Effects on

Consumers of a Code-Sharing Alliance

Between American Airlines and US Airways

The harmful effects that could result from reducing the number of

competitors in 260 markets could be mitigated by the benefits of

increasing competition in some individual markets. Each of the two

airlines has a limited share (i.e., less than 10 percent) in 60 of the top 5,000

markets. These 60 markets served 5.2 million passengers in 1997. Under a

code-sharing alliance, the airlines’ share in these markets would exceed 10

percent, and the alliance would represent a new active competitor. Of

these 60 markets, 15 are currently dominated by a single airline. In these

15 markets, the alliance’s creation could enhance competition, benefiting

the 2.3 million passengers who were served in these markets during 1997.

However, on average, the addition of the alliance as an active competitor

would make relatively little difference in the level of concentration in

these markets.67

An American-US Airways

Code-Sharing Alliance

Would Increase

Dominance in Certain

Markets

With code-sharing, an American-US Airways alliance would hold a

majority share in 977 of the top 5,000 origin and destination markets.

These 977 markets served 58.2 million passengers in 1997. According to

1997 data, American had a dominant share in 278 markets that served

about 25.1 million passengers, and US Airways had a majority share in 596

markets that served about 29 million passengers. Thus, a code-sharing

alliance would give the partners a majority share in 103 additional

markets. This increase in dominance is significant because it would allow

the partners to raise fares in selected markets—thereby potentially

harming consumers in these markets—without increasing their market

share overall. These 103 markets served nearly 4.2 million passengers in

1997 (see table IV.2). These markets include routes between American’s

hubs in Dallas or Miami and US Airways’s hubs in Philadelphia and

Pittsburgh where the alliance would carry more than 80 percent of the

passengers.

67Under the American-US Airways alliance, the average change in the HHI for these 60 markets is 62,

with a range of 5 to 156. This indicates that the addition of the alliance as an active competitor would

make relatively little overall difference in these markets.

Page 57 GAO/RCED-99-37 Domestic Airline Alliances
Appendix IV 

Potential Beneficial and Harmful Effects on

Consumers of a Code-Sharing Alliance

Between American Airlines and US Airways

Table IV.2: Potential Effect of an

American-US Airways Code-Sharing

Alliance on Market Dominance

Number of markets with

more than 50-percent

market share

Number of

passengers, 1997

American 278 25,050,145

US Airways 596 28,995,941

Alliance (new) 103 4,171,404

Total 977 58,217,490

Note:Market share represents the percentage of 1997 passenger traffic carried by each airline.

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

An American-US Airways

Code-Sharing Alliance

Would Also Increase

Barriers to Entry

Operating barriers could be an issue for this alliance if it proceeds to

code-sharing. Both airlines have significant presences at slot-controlled

Washington Reagan National and New York LaGuardia airports. US

Airways holds the largest percentage of slots at Washington Reagan

National (35.4 percent). Under an alliance, it would control 49.0 percent of

the slots there. US Airways also holds the largest percentage of slots at

New York LaGuardia (27.0 percent). Under an alliance, it would control

44.5 percent of the slots there. The change in concentration that would

occur under an alliance at gate-constrained airports would be less

significant. US Airways already has more than 80 percent of the market (as

measured by 1997 enplanements) at the Pittsburgh airport. We have

previously reported fares more than 20 percent higher in constant dollars

since deregulation at this airport.68 However, because American does not

have a significant market share at Pittsburgh (less than 2 percent), an

alliance would not significantly increase the partners’ market share.

In addition, some nonaligned airlines, consumer groups, and an industry

expert stressed the adverse effect on competition that a code-sharing

alliance between American and US Airways could exercise through

computer reservation systems. The alliance could gain a competitive

advantage through multiple listings of the same code-sharing flight on the

reservation screen, increasing the likelihood that the alliance’s flights

would be the first offered to the consumer.

68Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic

Markets (GAO/RCED-97-4, Oct. 18, 1996).

Page 58 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

If all three of the alliances were to move forward as code-sharing

arrangements, many questions would arise not only about the beneficial

and harmful effects that could be attributed directly to the individual

alliances but also about the cumulative effect of the alliances on

competition in the industry, particularly for new-entrant and nonaligned

airlines.

If all three alliances were implemented as code-sharing agreements, some

consumers would benefit from extended route networks but other

consumers could be harmed if competition were to decline. On the one

hand, consumers would gain access to new airport pairs served by the

three alliances, as well as additional flight frequencies, new routes with

better connections, and expanded frequent flyer programs. On the other

hand, according to the industry experts we interviewed, the alliances

would stimulate little growth in passenger traffic and would generally shift

passengers either among themselves or away from other nonaligned

airlines in various markets. No airline partner currently plans to add new

flights or airplanes in any given market.

Moreover, if the formation of code-sharing alliances created an

environment in which the partners competed less vigorously, the number

of competitors could be reduced in hundreds of domestic airport-pair

markets that were among the top 5,000 in 1997, potentially affecting tens

of millions of passengers. 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.

Operating barriers could increase at the slot-controlled airports in New

York and Washington, D.C., and if more markets were dominated by the

alliances, marketing barriers such as those represented by combined

frequent flyer programs could make entry by new airlines more difficult.

Finally, if all three alliances were to move forward as code-sharing

arrangements, the computer reservation systems that travel agents use to

book airline tickets could begin to display each alliance’s flights

twice—once under each partner’s code. Independent or new-entrant

airlines then might have more difficulty getting their flights listed

prominently in travel agents’ displays.

Page 59 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

Consumers Could

Realize Some Benefits

If All Three Alliances

Were to Proceed as

Code-Sharing

Agreements

If the three alliances were to proceed as code-sharing agreements, they

would be likely to create some new on-line destinations, allow some new

or improved routes and connections, and expand frequent flyer and club

benefits to members. However, because of some overlap among the

alliances, the total number of unique, new markets would be smaller than

the sum of such markets for each of the three alliances, and fewer

passengers would be likely to benefit from the alliances than some of the

airlines have predicted because their estimates assume no competitive

responses from other airlines. Overall, the industry experts we interviewed

indicated that the alliances would do little to stimulate growth in

passenger traffic because they would mainly shift passengers among

themselves, or from other airlines, in various markets.

Two alliances would be likely to create new frequencies and better

connections (assuming no schedule changes by the airlines).

Northwest-Continental officials and United-Delta officials did not count

their possible new frequencies and routings in the same manner, and

because American and US Airways originally proposed a much more

limited alliance, they did not calculate how many new frequencies and

routes a code-sharing alliance would make possible.

Many consumers may also benefit from the expanded frequent flyer

options available under the current alliance agreements. However, the

particular frequent flyer benefits will vary by alliance for consumers. In

addition, the ability of consumers to obtain awards may depend on the

availability of frequent flyer seats, the number of miles required to obtain

awards, and the types of restrictions (e.g., blackout dates) that the airlines

specify. Moreover, as noted earlier, award requirements may change over

time.

For methodological reasons, we were unable to quantify potential

cumulative benefits (e.g., new routes or flight frequencies) that could be

created by the alliances, but we believe that these benefits could be

substantial.

If Partners Did Not

Compete,

Code-Sharing

Alliances Could Harm

Consumers

It is difficult to determine whether three code-sharing alliances would

reduce competition, but industry experts’ concerns and the airlines’ past

records give cause for concern. There is agreement among some industry

experts that competition would be likely to decline over time as the

partners recognized their interdependence and began to maintain fares

above the competitive level. Such an outcome is consistent with widely

held economic principles that associate less competition with fewer

Page 60 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

competitors. As the ties between major airlines were strengthened, the

opportunities would increase for airlines to recognize their

interdependence. If this should occur, competition would suffer and fares

would rise.

Competition Could Decline

in Shared Markets

If all three alliances were to proceed with code-sharing, then the number

of competitors could decline in some domestic airport-pair markets. As

figure V.1 shows, 78 of the top 5,000 markets would become single-airline

markets if the alliance partners did not compete with each other. Overall,

concentration would also increase.

Figure V.1: Number of Markets and

Passengers Subject to Potentially

Decreased Competition Under Three

Code-Sharing Alliances

2 to 1 3 or 4 to 2 4 or 5 to 3 5 or 6 to 4 6 to 5

0

25

50

75

100

125

150

175

200

225

250

275

300

325

350

0

1

2

3

4

5

6

7

8

9

10

11

Markets Passengers (millions)

2 to 1 3 to 2 4 to 3 5 to 4 6 to 5

Decrease in number of competitors

Number of markets

1997 passengers

 a b c

aIncludes 17 markets where the three alliances would reduce the number of active competitors

from four to two.

bIncludes 23 markets where the three alliances would reduce the number of active competitors

from five to three.

Page 61 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

cIncludes two markets where the three alliances would reduce the number of active competitors

from six to four.

Source: GAO’s analysis of data provided by Data Base Products, Inc., on the top 5,000 origin and

destination markets in 1997.

If the alliance partners did not compete, the harmful effects of fewer

competitors could, to a limited extent, be mitigated by an increase in

competition in some markets. In total, the three alliances could add an

active competitor to 328 of the top 5,000 markets. Of these 328 markets,

which served almost 22 million passengers in 1997, 97 are currently

single-competitor markets. In these markets, which served over 7.8 million

passengers in 1997, the alliances would add one or more active

competitors.

Market Dominance Would

Increase

If three code-sharing alliances were implemented, the number of

dominated markets would increase by 341 (about 10 percent), from 3,381

to 3,722 airport pairs—or about 75 percent of the top 5,000 markets in

1997.69 Such an increase in market dominance is significant, according to

industry analysts, who predicted that alliance partners might not be able

to gain much market share overall but might be able to increase revenues

in individual markets where they held a dominant position. In 1997,

approximately 280 million passengers, or over two-thirds of those who

flew domestically, flew in these markets.

Barriers to Entry Could

Increase

Overall, airfares have decreased and service has improved since the airline

industry was deregulated in 1978. Nevertheless, operating and marketing

barriers have presented significant barriers to competition. The existence

of these barriers increases the likelihood that additional concentration

could harm consumers by discouraging entry by other established or new

entrant airlines, thus allowing the alliance partners to raise their fares

and/or reduce their services. As we have previously pointed out, operating

restrictions such as slot controls and gate constraints can make it more

difficult for new carriers to enter a market. In all cases, the alliances could

add to the level of concentration at these airports, as shown in table V.1.

69Non-alliance airlines—such as TWA, AmericaWest, and Southwest—dominated 1,035 of the top 5,000

routes in 1997. Over 96 million passengers flew on these routes. Thus, were the three alliances to

proceed to code-sharing and not act independently, they would dominate 2,687 routes, on which over

183 million passengers flew in 1997.

Page 62 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

Table V.1: Alliance Partners’ Combined Market Share at Slot-Controlled and Gate-Constrained Airports

Postalliance market sharea

Constraint Airport

Prealliance market

sharea/dominant airline United-Delta

American-US

Airways

NorthwestContinental

Slot Chicago O’Hare 48.3/United 51.7 40.1 4.2

Washington Reagan

National

35.4/US Airways

24.0 49.0 14.4

New York Kennedy 30.0/American 28.9 30.1 1.1b

New York LaGuardia 27.0/US Airways 34.3 44.5 10.1

Gate Charlotte 83.8/US Airways 3.3 85.3 1.4

Cincinnati 76.8/Delta 77.9 0.9 1.4

Detroit 77.8/ Northwest 4.8 4.8 79.4

Minneapolis 80.5/Northwest 5.9 3.9 81.5

Newark 60.8/Continental 15.0 12.1 64.6

Pittsburgh 82.2/US Airways 3.6 83.1 2.5

aMarket share is expressed as the percentage of total 1997 enplanements at each airport.

bContinental did not serve New York’s Kennedy Airport in 1997.

Source: GAO’s analysis of DOT’s data.

Although, in most cases, the percentage increase in market share would be

small, in every case, the alliance partner with the lesser share might have

an opportunity to improve its market position, potentially increasing the

difficulty for other airlines of gaining access at these 10 important airports.

In the complaint it filed against Northwest and Continental, DOJ also noted

that difficulty in obtaining access to gate facilities impedes new entry. One

opportunity that the lesser partner might derive from its immediate access

to the dominant partner’s strength at the airport is that its flights might

appear more attractive to consumers. For example, under a code-sharing

alliance, Texas consumers might find Continental a more desirable airline

to fly to Minneapolis, where Northwest enjoys a dominant market share.

This is because Continental’s presence in the alliance would allow it to

market, and to offer, an increased number of daily flights in these markets

under its code on Northwest’s planes. Another opportunity for the lesser

partner might be to remove aircraft from airports where its operations are

unprofitable and to shift passengers to its partner’s aircraft, thereby

strengthening its partner’s position at that airport. For example, if

Northwest and Continental each operated flights from Minneapolis to

Cleveland, but Continental served that market only with smaller commuter

aircraft instead of larger jets, it might choose to put its passengers on

Page 63 GAO/RCED-99-37 Domestic Airline Alliances
Appendix V 

Implementation of All Three Alliances as

Code-Sharing Arrangements Could

Substantially Affect Competition

Northwest’s jet flights. Concentration at airports other than the 10 cited in

table V.1 could also increase, potentially preventing small and new-entrant

carriers from gaining market share at heavily concentrated airports.

We have also reported that airline sales and marketing practices may make

competitive entry more difficult for other airlines.70 However, we have not

been able to quantify the effects of these barriers on competition for any

or all of the alliances. Nevertheless, marketing practices such as frequent

flyer programs and special bonuses to travel agents for booking traffic on

an incumbent airline may encourage travelers to choose one airline over

another on the basis of factors other than the best fares. Such practices

may be most important if an airline is already dominant in a given market

or markets. Because the alliances could increase dominance by about

10 percent in the top 5,000 markets in 1997, marketing barriers in these

metropolitan areas would be likely to become more important. DOJ also

noted the effect that such practices had on impeding competition from

new entrants in the complaint it filed against Northwest and Continental.

Nonetheless, mitigating the effect of these practices without banning them

is difficult, and banning them involves a trade-off between their potential

anticompetitive effects and the consumer benefits that some of them

bring.

Some nonaligned airlines, consumer groups, and an industry expert

stressed the adverse effects on competition that code-sharing alliances

could exercise through computer reservation systems. Through

code-sharing, flights that previously appeared in these systems under one

airline’s code could now appear twice—once under the operating airline’s

code and once under the code-sharing partner’s. Connecting flights

between the partners could appear three times, once under each partner’s

code and once as a connecting flight. Thus, it is likely that the creation of a

code-sharing alliance would increase the number of flights listed for the

partners on the first reservation screen, from which travel agents often

book flights. Where three alliances provided code-sharing flights in the

same markets, six or more code-sharing flights might appear on the first

screen, crowding out opportunities for other airlines.

70See, for example, Aviation Competition: International Aviation Alliances and the Influence of Airline

Marketing Practices (GAO/T-RCED-98-131, Mar. 19, 1998).

Page 64 GAO/RCED-99-37 Domestic Airline Alliances
Major Contributors to This Report

Resources,

Community, and

Economic

Development

Division, Washington,

D.C.

Aaron Casey

Elizabeth Eisenstadt

Tina Kinney

Steven Martin

Sara Ann Moessbauer

Marnie Shaul

Seattle Regional

Office

Paul Aussendorf

Stan Stenersen

Office of General

Counsel

David Hooper

Office of the Chief

Economist

Joseph Kile

Page 65 GAO/RCED-99-37 Domestic Airline Alliances
Major Contributors to This Report

Page 66 GAO/RCED-99-37 Domestic Airline Alliances
Related GAO Products

Aviation Competition: Proposed Domestic Airline Alliances Raise Serious

Issues (GAO/T-RCED-98-215, June 4, 1998).

Domestic Aviation: Service Problems and Limited Competition Continue in

Some Markets (GAO/T-RCED-98-176, Apr. 23, 1998).

Aviation Competition: International Aviation Alliances and the Influence of

Airline Marketing Practices (GAO/T-RCED-98-131, Mar. 19. 1998).

Airline Competition: Barriers to Entry Continue in Some Domestic

Markets (GAO/T-RCED-98-112, Mar. 5, 1998).

Domestic Aviation: Barriers Continue to Limit Competition

(GAO/T-RCED-98-32, Oct. 28, 1997).

Airline Deregulation: Addressing the Air Service Problems of Some

Communities (GAO/T-RCED-97-187, June 25, 1997).

International Aviation: Competition Issues in the U.S.-U.K. Market

(GAO/T-RCED-97-103, June 4, 1997).

Domestic Aviation: Barriers to Entry Continue to Limit Benefits of Airline

Deregulation (GAO/T-RCED-97-120, May 13, 1997).

Airline Deregulation: Barriers to Entry Continue to Limit Competition in

Several Key Domestic Markets (GAO/RCED-97-4, Oct. 18, 1996).

Domestic Aviation: Changes in Airfares, Service, and Safety Since Airline

Deregulation (GAO/T-RCED-96-126, Apr. 25, 1996).

Airline Deregulation: Changes in Airfares, Service, and Safety at Small,

Medium-Sized, and Large Communities (GAO/RCED-96-79, Apr. 19, 1996).

International Aviation: Airline Alliances Produce Benefits, but Effect on

Competition Is Uncertain (GAO/RCED-95-99, Apr. 6, 1995).

Airline Competition: Higher Fares and Less Competition Continue at

Concentrated Airports (GAO/RCED-93-171, July 15, 1993).

Computer Reservation Systems: Action Needed to Better Monitor the CRS

Industry and Eliminate CRS Biases (GAO/RCED-92-130, Mar. 20, 1992).

Page 67 GAO/RCED-99-37 Domestic Airline Alliances
Related GAO Products

Airline Competition: Effects of Airline Market Concentration and Barriers

to Entry on Airfares (GAO/RCED-91-101, Apr. 26, 1991).

Airline Competition: Industry Operating and Marketing Practices Limit

Market Entry (GAO/RCED-90-147, Aug. 29, 1990).

Airline Competition: Higher Fares and Reduced Competition at

Concentrated Airports (GAO/RCED-90-102, July 11, 1990).

Airline Deregulation: Barriers to Competition in the Airline Industry

(GAO/T-RCED-89-65, Sept. 20, 1989).

Airline Competition: Fare and Service Changes at St. Louis Since the

TWA-Ozark Merger (GAO/RCED-88-217BR, Sept. 21, 1988).

Competition in the Airline Computerized Reservation Systems

(GAO/T-RCED-88-62, Sept. 14, 1988).

Airline Competition: Impact of Computerized Reservation Systems

(GAO/RCED-86-74, May 9, 1986).

Airline Takeoff and Landing Slots: Department of Transportation’s Slot

Allocation Rule (GAO/RCED-86-92, Jan. 31, 1986).

Deregulation: Increased Competition Is Making Airlines More Efficient and

Responsive to Consumers (GAO/RCED-86-26, Nov. 6, 1985).

(348107) Page 68 GAO/RCED-99-37 Domestic Airline Alliances
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100