Pacts Leave Delta Riders in Lurch — WSJ

Reduced cooperation with other carriers means stranded riders have fewer options

By Doug Cameron and Susan Carey 
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Delta Air Lines Inc.’s ability to get thousands of its stranded customers to their destinations following its computer-system failure Monday is being hampered by reduced cooperation among some carriers.

The problems continued Tuesday as hundreds more Delta flights were canceled, with more problems expected Wednesday.

For years, airlines have routinely placed passengers on competitors’ flights if they canceled their own in the event of a mechanical problem or poor weather, typically at an agreed discount to the on-the-day ticket price.

The industry practice known as interlining had allowed carriers to send passengers and bags through each other’s networks. Under these pacts, stranded passengers normally wouldn’t have to pay extra to fly on the other airline.

But it has become less prevalent. That is partly because new types of alliances limit links between big airlines and nonmembers, including fast-growing low-cost carriers that generally don’t participate at all. The industry has also grown increasingly competitive amid a consolidation that has created three huge U.S. carriers and a tail of low-fare rivals all fighting for passengers and loading their planes to maximum capacity.

The industry’s reshaping hasn’t led to more delays or cancellations. Complaints to the Transportation Department fell, fewer fliers were being involuntarily bumped and baggage mishandling diminished.

The DOT said 1.3% of flights were canceled in the 12 months to May 2016, the latest figures available, compared with a peak of 3.33% in the same period two years earlier. The percentage of late arrivals and departures also fell.

But the trend toward fewer interline options means there is less leeway when things go wrong, as Delta found when a “power control module” at the airline’s technology center malfunctioned early Monday morning. Backup systems didn’t kick in, causing more than 1,500 flights to be canceled over two days.

For such situations, big airlines had maintained interlining outside their broader alliances to give them a safety net in case of operational problems. But last year Atlanta-based Delta dropped its pact with American Airlines Group Inc. following disagreement over how much they would pay to send stranded passengers on each other’s flights.

American’s own operational problems last summer meant it sent far more delayed passengers to Delta than it received from the Atlanta-based carrier. Dropping the interline gave Delta the option of filling any empty seats with its own late-arriving passengers paying higher fares.

Moreover, Delta had built up the best operational record among the major network airlines over the past few years, reporting fewer cancellations than rivals.

Yet on Monday, the lack of a relationship with the larger rival left Delta passengers with fewer options, at a time when high industry load factors leave an average of fewer than 20% of seats unfilled.

“In the old days, a lot was done by people at the airports who knew each other and helped each other out,” said George Hamlin, a veteran industry consultant who started his career at Trans World Airlines.

Carriers don’t disclose how much they pay each other to accommodate displaced passengers and terms vary widely, said Lori Tully, secretary-treasurer at the Airlines Clearing House, a nonprofit processor of interline fees.

To encourage cooperation, the clearinghouse calculates average fares for interline partners to use when calculating what each owes to accommodate displaced passengers. Ms. Tully said this helps avoid disputes between carriers charging different ticket prices.

All told, the clearinghouse handles $12 billion a year in payments between carriers for passengers and cargo, said Ms. Tully, though the bulk is for routine transfers rather than displaced passengers.

After a power outage grounded hundreds of Delta planes Monday morning, passengers trying to fly on American and some other low-fare carriers had to pay the walk-up fare, typically the most expensive on a flight. For example, American was charging $1,081 for an evening flight from Los Angeles to Atlanta Tuesday evening. Delta’s advance purchase fare for a flight on Aug. 23 was under $200.

Delta still has domestic interline deals with United Continental Holdings Inc. and others such as Alaska Air Group Inc., but the lack of alternatives for passengers is particularly acute at airports such as Atlanta or La Guardia where American and Southwest Airlines Co. are big players alongside Delta.

United and Delta last year agreed to pay higher fares for their stranded passengers as part of a new interline pact, according to a person familiar with the situation. The two continue to place dislocated travelers on each other’s flights. Delta and American declined to comment on whether they would try to revive an interline deal.

Broader alliances such as Delta’s membership of the SkyTeam pact alongside Air France-KLM and others, or American’s Oneworld agreement with British Airways have also changed how carriers cooperate with one another. The big alliances include interlining alongside other benefits such as revenue sharing. The alliances give carriers access to big route networks, and airline executives said this can reduce the motivation to cooperate with nonmembers.

Most low-cost airlines such as Southwest and Spirit Airlines Inc. don’t have interline deals with the big three carriers. In some cases bigger airlines’ computer systems don’t mesh with Southwest’s. The airline said it plans to replace its 30-year-old reservations system in 2017, which will allow for interlining.

The much lower fares often offered by the low-cost carriers can also make such deals uneconomic for both sides. Bigger airlines would rather hold a seat open in the hope of securing a walk-on fare, while low-cost carriers are unwilling to pay the premium to transfer passengers to larger rivals.

Write to Doug Cameron at doug.cameron[a]wsj.com and Susan Carey at susan.carey[a]wsj.com

Copyright (c) 2016 Dow Jones & Company, Inc.