DOJ opposes antitrust immunity for Continental

DALLAS — The Justice Department opposes Continental Airlines Inc.’s broad request for antitrust immunity to work more closely with United Airlines and other carriers in setting prices and schedules for international service.

The department says the airlines should get more limited immunity. It argues that broader immunity could hurt competition on other routes between the U.S. and China and raise fares within the United States.

Continental, the nation’s fourth-largest airline, wants antitrust immunity to cooperate with United and other Star Alliance airlines, including US Airways, Lufthansa and Air Canada.

The Justice Department noted that Continental and United also plan to sell seats on each other’s U.S. flights, combine customer lounges, consolidate operations at airports served by both, and work together on procurement. Such an arrangement would go beyond normal “code-sharing” deals that involve reciprocal sales and mileage programs.

The DOJ said it could closely resemble a merger, although the department said the two airlines “assert that they will maintain their separate domestic networks and make independent pricing, scheduling and sales” decisions in the U.S. Continental and United discussed a merger early last year, but Continental broke off the talks when United’s financial health deteriorated rapidly.

The final decision on Continental’s request for immunity to join United’s alliance of other airlines rests with the Transportation Department. However, antitrust experts said the Justice Department’s stance, disclosed in a regulatory filing late Friday, raised the chances that Continental won’t get everything it wanted.

The Transportation Department gave preliminary approval to the request several weeks ago, but soon after that the Justice Department signaled that it wanted a chance to study the proposal.

Continental spokesman Dave Messing said the airline is still confident that the Transportation Department will approve its request. Messing said Continental needs the approval to compete fairly with airlines that already have antitrust immunity.

“In this economic crisis, it is more important than ever for the U.S. government not to hamper our industry’s and company’s efforts to remain competitive and serve our consumers and communities,” he said.

The Justice Department said the benefits that Continental claimed from antitrust immunity could be achieved without immunity. It cautioned that immunity for Continental and United, the No. 3 U.S. carrier, to work more closely could hurt competition on U.S.-Beijing routes and “raises significant concerns” about hurting competition within the United States.

The department also said letting Continental cooperate with Air Canada and European SkyTeam members could leave consumers with fewer choices and higher fares on travel between the U.S. and Canada and on some routes to Europe, including New York-Geneva and Chicago-Frankfurt.

Robert Doyle, an antitrust attorney in Washington, said the DOJ’s concerns were not surprising, given the broad sweep of Continental’s immunity request. Even though the final decision rests with the Transportation Department, he said Attorney General Eric Holder “has a lot of weight” to influence the outcome.

“It seems reasonable for DOJ to say (the Continental request) is too broad,” Doyle said. “It’s open-ended immunity for any deal they decide to do. We don’t know what deals or acquisitions or affiliations they are considering.”

The Justice Department’s opposition to immunity for Continental could affect AMR Corp.’s American Airlines, which wants immunity to work closely with British Airways and Spain’s Iberia on trans-Atlantic routes. American, BA and Iberia belong to an alliance called oneworld.

American still expects to win immunity from the Transportation Department by the end of October, said spokesman Andrew Backover.

“The sooner that our application is approved, the quicker it will lead to healthier and more robust competition by allowing oneworld to compete on the same playing field” against two other alliances that already have immunity, Backover said.

SkyTeam, including Delta and Air France, already has antitrust immunity on trans-Atlantic routes, as do Star Alliance members other than Continental.

Houston-based Continental expects to leave SkyTeam on Oct. 24 and join Star quickly.

Continental shares rose 8 cents to close at $8.86 in trading Monday.