Continental Move to Star Alliance: Will it Heighten Competition with Delta?
April 8, 2009, 10:46 AM ET

By WSJ Staff
The U.S. Transportation Department on Tuesday gave Continental Airlines preliminary approval to join a global alliance that cooperates on scheduling and revenue sharing, a sign the Obama administration may not support a congressional effort to limit such alliances, The Wall Street Journal reports.

Journal reporters Christopher Conkey and Paulo Prada write:
The administration’s decision will allow Continental to join the Star Alliance with UAL Corp.’s United Airlines, Air Canada, Deutsche Lufthansa AG and other carriers. It also grants the alliance antitrust immunity, in essence giving the carriers permission to act as a single airline on international routes. The approval was expected and is consistent with policy under previous administrations.

But the Continental action comes as Rep. James Oberstar, a Minnesota Democrat who serves as chairman of the House Transportation and Infrastructure Committee, is pushing legislation that would curtail international airline alliances.

The agreements, especially when fortified by antitrust immunity, enable airlines to act in ways that would otherwise be considered collusive. Mr. Oberstar, who couldn’t be reached to comment, says these alliances limit competition and hurt consumers.

A DOT spokesperson declined to comment on Mr. Oberstar’s proposal…
For Houston-based Continental, the switch to the Star alliance will give it a bigger and more strategic role than it currently has in SkyTeam, where many of its routes overlapped with Delta, which flies to many of the same markets in Europe and Latin America as Continental.

By aligning itself with United, whose main international routes lie across the Pacific, and Lufthansa, one of the biggest carriers in Europe,the airline is expected to enjoy a greater volume of transfer traffic and broader international reach than it does now. Continental expects to make the switch to Star later this year, after it modifies sales and reservations systems so they can communicate directly with those of its new partners.

As we noted in a previous post, it’ll be interesting to watch how Continental’s move to the Star alliance will play out in the New York market. For instance, Delta recently has touted its promotional links to the New York Yankees and Mets, while it opted not to renew its sponsorship of the Atlanta Falcons. Some said part of that decision might be an effort at Delta to try to connect with Continental fliers — who frequent the carriers major New York-area hub in Newark and have gotten used to SkyTeam — and keep them from switching to Star with Continental.