In the clearest signal yet that there is a new game in town, the Department of Justice opposed the pending inclusion of Continental Airlines in the Star Alliance program, dealing a blow to the competitiveness of U.S. airlines on the world stage, if the advice is heeded by the Department of Transportation.

It is likely that Continental and United will have to significantly change the scope of the alliance in order to gain final Department of Transportation approval after the DOJ filed its objections in the docket last Friday. It indicated that previous grants of antitrust immunity at least achieved some level of progress toward open skies and that this does not.

"DOT should deny the broad requested immunity and instead grant a more limited immunity," said DOJ in its 50+-page filing, which expressed deep concern that a United/Continental team would impact the domestic market despite the partner’s assurances about maintaining independent pricing, scheduling and sales on the domestic front. "The immunity requested by the joint applicants is 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."

DOT, in April, granted tentative approval pending a request to review the proposed deal by DOJ, which concluded approval for Continental to join the Star Alliance, would provide little consumer benefit. The move may end 15 years of an increasingly liberal policy toward international aviation alliances that unions staunchly oppose. It comes as legislation introduced by Representative James Oberstar has tasked the General Accountability Office with looking into the competitive aspects of such alliances. In addition the European Commission is conducting its own review of alliances.

DOJ said the deal would threaten the competitiveness and cause consumer harm on routes all over the world. The department specifically cited US service to China, Germany, Sweden, Switzerland, Portugal and Latin America. It also said the deal would be tantamount to the merger previously attempted by the two carriers. Continental dropped such talks with the increasing shakiness of United during the past two years as fuel spiked and the economy worsened.

Head of the Justice Department’s antitrust division, Christine Varney, signaled her suspicion of such alliances all year, and said should DOT grant the antitrust immunity fares would likely increase. DOT has final authority to approve or disapprove the partnership and has given interested parties until July 6 to comment.

Continental, in a statement yesterday, said it remains confident it will ultimately get approval of its application. “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 and serve our consumers and communities.” United also expressed its confidence in gaining approval.

The question then remains on the fate of a similar request from OneWorld’s British Airways and American Airlines, a decision on which is expected by the end of October, according to American. OneWorld, which also includes Iberia, SkyTeam, with Air France and Delta, and the Star Alliance, with United, US Airways, Air Canada and Lufthansa, have already received DOT approval. The DOJ is objecting to the fact that involves two carriers – Continental and United – that compete on many of the same routes. Continental announced earlier that it plans to leave SkyTeam October 24 to joine the Star Alliance.

The alliance would allow United and Continental to essential compete in the international arena as a single entity, sharing customer information, doing joint marketing and planning, combining sales groups, and streamlining route networks.

The filing comes as more international carriers solidify their relationships in an effort to compete. On July 7, JAL said it will begin a code-share agreement with Air France between Paris and Istanbul, continuing a relationship first begun in 1960. They also code share on 13 other routes throughout Europe. Air France also announced will begin code sharing with Bangkok Airlways tomorrow, now that an agreement has been struck, offering Air France passengers six new destinations in the Southeast Asian country. Bangkok Airways has been a partner of Air France and KLM’s frequent flyer program, Flying Blue, since June 2005. Furthermore, at Bangkok-Suvarnabhumi international airport, Air France’s passenger and ramp operations are handled by BFS (Bangkok Flight Services, a subsidiary of Bangkok Airways).