Sixteen years ago, Robert L. Crandall, the now-retired chief executive officer of American Airlines, liked to describe the industry practice known as code-sharing as little more than "legalized consumer fraud."

Back then, Crandall was trying to kill an agreement between British Airways and USAir (US Airways' name at the time) that allowed them to code-share between their respective hubs in London and Philadelphia. American at the time was in an uphill battle to draw passengers away from the two other airlines and on to its own Philadelphia-London flights.

Today, Crandall still doesn't care much for code-sharing as it's now used by airline alliances. The practice allows airlines to put the same flight numbers on one another's flights, coordinate their schedules, jointly set fares, and sell one another's tickets.

But within a couple of years of Crandall's remarks, his old airline was in its own code-sharing deal with British Air, and now the carriers are working feverishly to expand the agreement so they can effectively merge some of their transatlantic operations.

Airline alliances have become a common industry practice for international service, with three big ones that include practically every major carrier. Members of the alliances fly about 80 percent of all available airline seats worldwide each day.

US Airways, United, Lufthansa, Singapore, Thai Airways, Swiss, and 15 other carriers are members of the Star Alliance, the first and oldest of the partnerships. The SkyTeam alliance includes Delta, Air France-KLM, Alitalia, Korean Air, and eight others.

American, British Air, Iberia, and others are in a third alliance called oneworld, but it differs from the others in a key way.

American, British Air, and Iberia applied last fall to the U.S. Department of Transportation to erase that key difference. They asked for the same antitrust immunity that some members of the other alliances already have, letting them talk to one another about fares and schedules. Antitrust immunity effectively allows airlines to operate as if they were one carrier without the legalities of actually merging.

In its application to the government, the oneworld carriers made the same arguments that each of the alliances have when they were seeking antitrust immunity. The agreement, the airlines said, "will benefit consumers by providing easy, seamless, and convenient travel to more global destinations with better connections, improved flight schedules, and enhanced frequent-flier benefits."

The oneworld airlines also contended that they needed antitrust immunity because it would "improve customer choice" by enabling the alliance to "compete more effectively around the world with other global alliances."

The need for vigorous competition among the alliances has led some groups that represent airline customers - and are often at odds with the industry - to support the oneworld carriers' application.

The Business Travel Coalition, the Radnor-based group representing corporate travel managers, earlier this month called for approval of the application of American and its partners, as a way to balance competition among the alliances.

The travel coalition noted that granting antitrust immunity to the other alliances had enabled them to increase their transatlantic market share vs. British Air and American. The Star Alliance airlines now dominate service at Frankfurt, Lufthansa's hub, and SkyTeam dominates at Air France's Paris hub and at KLM's Amsterdam hub.

The oneworld team has a large market share, 58 percent, at London's Heathrow Airport, but that's still smaller than what the other alliances have at their European hubs. Britain has been criticized for years for trying to limit competition at Heathrow to protect its flag-carrying airline.

The Business Travel Coalition added that big companies that spend millions a year on air travel say they believe that a more competitive Heathrow will help keep fares lower and make service better, especially on routes to Europe where the Star and SkyTeam airlines dominate.

Despite the way this train seems to be headed, there are numerous airline experts who say it's on the wrong track.

Rep. James L. Oberstar (D., Minn.), chairman of the House Committee on Transportation and Infrastructure, has introduced legislation requiring a Government Accountability Office study to determine whether the benefits of antitrust immunity for alliances "outweigh the adverse effects of the resulting loss of competition." If the GAO finds that it does, the legislation would require the Transportation Department to review and revise its immunity policy.

The most outspoken airline that opposes the oneworld application is Virgin Atlantic, a direct competitor with the alliance at Heathrow, which says it would be at a serious disadvantage if American and British Air gain even more market share at the airport.

Virgin spokesman Paul Charles said that the other European hub airports weren't as crowded as Heathrow, which limits the ability of Virgin and other airlines to compete at the London airport.

Airline consultant Robert Mann is another skeptic, who says Crandall got it right 16 years ago. The big international airlines' real goal, he said, isn't "seamless service" but avoiding fare competition, especially in the first- and business-class cabins where they make all their money.

Code-sharing is "still a fraud on the public," Mann said. "It's not what it's cracked up to be, and never will be."

Contact Tom Belden
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