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Continental Airlines

Continental Airlines

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By SUSAN CAREY and DOUG CAMERONThe Justice Department belatedly objected to a plan by United Airlines parent UAL Corp.

and Continental Airlines Inc.

to cooperate on routes world-wide within the Star Alliance of air carriers, and recommended instead a more-limited trans-Atlantic deal.The Transportation Department gave UAL and Continental preliminary approval for the arrangement nearly three months ago.

The DOT tentatively agreed to let Continental join the Star group and granted Continental and nine of Star's 21 current members provisional antitrust immunity to act as a single carrier on some international routes.The Justice Department, which said approval of the airlines' request for immunity would likely result in higher fares and diminished competition, technically has no authority over international aviation agreements, but it typically weighs in on such DOT rulings.

In this case, however, it waited nearly two months after the comment period closed before registering its opinion with the DOT on Friday.The department's objections could lead the DOT to reconsider or make changes in its decision.

That could spell trouble for United, which was counting on closer ties with Continental to give it a boost after failing to find a merger partner last year.The Justice Department's objections also could signal problems for a separate application for antitrust immunity by members of the oneworld group of carriers, led by British Airways PLC and AMR Corp.'s American Airlines.The DOT declined to comment Monday.The department's objections are another sign of the tough antitrust-enforcement stance taken by the Obama administration.Separately, Rep.

James Oberstar, a Minnesota Democrat, has introduced legislation that would require a study of airline alliances and possibly wind them down after three years.Because U.S.

law bars airlines from cross-border mergers in which they would be majority-owned by foreigners, U.S.

carries have tried to achieve some of the same benefits by cooperating with overseas rivals.Since sharing revenue and coordinating pricing, scheduling and marketing normally would be deemed collusive and illegal, foreign and domestic carriers have sought antitrust immunity from the DOT, which can exclude certain routes on which there is little competition.After more than 15 years of the DOT's blessing such arrangements, there are many cooperation deals between carriers, and now clubs of airlines are asking for immunity to cooperate collectively on international routes.If the DOT acts on the Justice Department's objections and narrows the scope of the cooperation, that could reduce the revenue benefits and marketing clout United hoped to extract from having Continental in its club.

It also could leave Continental isolated.

The carrier had planned to leave a rival alliance in October, assuming it would be joining Star.James OberstarUnited, the No.

3 U.S.

airline by traffic, said Monday that it is confident its application will receive final approval.

In a separate statement, No.

4 Continental declined to comment on the specifics of the Justice Department's objections, but said, "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."In its comments to the DOT, the Justice Department called the two airlines' immunity request "unprecedented in scope and breadth, sanctioning collusion by United and Continental on all international service, eliminating or significantly reducing competition between certain Star alliance members on routes where they provide the only -- or almost all of -- the competitive alternatives, and removing previously imposed protections designed to preserve competition on overlap routes."The department called on the DOT to amend its order granting the airlines' request.Unions representing United pilots and flight attendants also have signaled their opposition, contending the antitrust immunity would lead to the outsourcing of U.S.

jobs.European regulators also are examining airline-industry cooperation.

The European Commission in April said it intensified its review of members of the Star Alliance, led by United and Deutsche Lufthansa AG.The commission also said it was investigating the planned expansion of oneworld.

British Airways and American, along with Spanish partner Iberia Líneas Aéreas de España SA, asked the DOT in August for permission to cooperate more closely on trans-Atlantic routes.Monday, British Airways and American said their application stood on its merits, and that they expect a positive decision by Oct.

31.—Daniel Michaels contributed to this article.Write to Susan Carey at [email protected] and Doug Cameron at [email protected] in The Wall Street Journal, page B2
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