The US General Accounting Office has planted serious seeds for concern in politicians' minds by claiming that proposed US domestic alliances could mean a reduction in competitive service to almost 101 million American passengers.

The GAO highlights the Delta Air Lines/United Airlines partnership as especially worrying because of its sheer size. According to GAO figures, that alliance would mean an increase in competition in 89 markets, but a decrease in competition in 1,038 markets.

The GAO's analysis of the impact that the domestic alliances would have on competition came to light at a Senate hearing chaired by Senator Slade Gorton. Each of the senators on the panel represented a largely rural state, and what they heard from the GAO witness fed their worst fears - that small, rural towns stand to lose most from the domestic alliances.

John Anderson, GAO's director of transportation, agrees that some passengers would benefit from the through services and frequent flyer linkups that the alliance partners are proposing. But competition would be reduced, he argues, on almost 2,000 routes and the non-hub city pairs would be hardest hit.

While 30.5 million US passengers stand to benefit from the alliances, 101 million might see a reduction in competitive service. The Northwest Airlines/Continental Airlines deal is of smallest concern because its potential impact is equal each way - 15 million passengers would benefit while 15 million would potentially be harmed. In the case of American Airlines/US Airways, 6 million would benefit and 25 million would lose competitive service. But with the Delta/United alliance, the potential harm would outweigh the good by a considerable margin, says the GAO. More than 8 million people in 89 markets might benefit from that alliance, but 60 million people in more than 1,000 markets stand to lose.

Such numbers add fuel to the fire for many senators representing rural states, who already see their small towns threatened with extinction if airline service disappears or is reduced to a minimal service provided by a single carrier. Senators at the hearing worried that 'virtual mergers' will make a 'national sacrifice zone' of rural America.

It will be difficult for any carrier to steer its alliance past Congress, even though such agreements do not legally require official approval. Department of Transportation assistant secretary for aviation and international affairs Charles Hunnicutt acknowledges that the DOT has no preapproval authority on such codesharing deals, but has requested detailed information from each carrier because of its concerns. 'The proposed domestic alliances are new in both size and scope. They require close scrutiny,' says Hunnicutt.

The Department of Justice, meanwhile, has the power to study the Northwest and Continental deal because of the equity transfer involved. But the DOJ's deputy assistant attorney general, antitrust division, John Nannes says its authority to acquire information about each of the alliances is 'quite substantial' and it will use that power.

Answering one senator's concern that '. . . the American people should have all the facts before this game is off to the races', both Hunnicutt and Nannes assured the politicians it was unlikely any of the proposed alliances would be consummated in a hurry, not least because of the pilot union approval processes and technological barriers.

Source: Airline Business