CONTINENTAL AIRLINES WARNS THAT AMERICAN AIRLINES-BRITISH AIRWAYS ALLIANCE - "WOULD STIFLE COMPETITION"

Continental Airlines (NYSE:CAL) today said it has filed comments with the U.S. Department of Transportation (DOT) warning that a proposed American Airlines-British Airways alliance would deal an overwhelming blow to transatlantic competition, with anticompetitive spillover effects in other markets.

"Combining American and British Airways sales and distribution networks in the U.S., U.K. and Europe with their dominance at London and, in particular, London Heathrow, would make it impossible for other airlines to compete effectively between the U.S. and the U.K. or Europe, and would harm competition in the U.S. by enhancing the dominance of American, the largest U.S. Airline,” Continental said in its DOT filing.

A combined AA-BA would be 300 percent larger than the nearest competitor on U.S.-U.K. routes, and nearly 81 percent of all U.S.-Heathrow passengers would have reduced or no competition. Proposed combinations among AA-BA and United-bmi would create a level of U.S.-London Heathrow seat concentration greater than a merger between the six largest domestic U.S. carriers or combining the top 21 European airlines.

“Compounding those anticompetitive effects by simultaneously combining United, the second largest U.S. airline, and bmi, with their added strength at London Heathrow, would make it impossible for other airlines or alliances to even think about providing meaningful future competition between the U.S. and the U.K. and the U.S. and Europe,” Continental said. “The negative effects of such a result on domestic competition and employment opportunities at this time, given the service reductions, layoffs and uncertainties created by the tragedies of September 11, would be staggering.”

Yesterday, the U.S. Department of Justice (DOJ) voiced its opposition to the proposed alliance, concluding that the AA-BA alliance threatens a substantial loss of competition, which would likely result in higher air fares and reduced service.

The DOJ agreed with Continental and others that the AA-BA transaction threatens a substantial loss of competition and higher prices for a large number of consumers. It also agreed that Heathrow airport is so highly favored by consumers that it constitutes a separate market and that access to Heathrow airport remains severely constrained. The DOJ also reminded the DOT that de facto open skies, including “adequate provision for new and expanded U.S. carrier service through London airports, particularly Heathrow,” must be achieved before antitrust immunity could be considered.

The DOJ opposition is consistent with its response during the last proceeding, in 1998, when AA-BA abandoned a similar cooperative plan.

In its filing, Continental argued that the current proposed alliance “is at least as anticompetitive as it was the last time the (Transportation) department considered it, and antitrust immunity should be denied to ensure at least a modicum of competition.”