Alliances between major and regional airlines are the perfect win-win for both sides: working together, they can achieve greater geographic reach and haul more passengers more profitably than either can do alone.

But these “code-share agreements” are facing a crackdown by federal regulators, who are looking at how airlines disclose those arrangements to customers.

Most major U.S. airlines have code-sharing agreements with regional carriers like SkyWest (Nasdaq:SKYW), Pinnacle Airlines (Nasdaq:PNCL) and Republic Airways (Nasdaq:RJET).  These companies use smaller aircraft (often regional jets with 50 or fewer seats) to fly short-haul routes or to serve markets that would be unprofitable for major carriers like Delta Air Lines (NYSE:DAL), AMR Corp’s (NYSE:AMR) American Airlines, United Continental (NYSE:UAL) and US Airways (NYSE:LLC) to operate. 

Regional carriers, which operate about 50% of all domestic flights, are branded into the major airlines they serve — American Connection, United Express, Delta Connection and US Airways Express are a few examples. 

But despite outward appearances, these code-share flights are operated with different pilots and a different set of rules – a dynamic that critics say makes these flights less safe than those operated by their larger partners. Indeed, two-thirds of corporate travel managers surveyed by the Business Travel Coalition last year believe there are safety differences between large and small airlines.

Case in point: the crash of Continental Express 3407, a code-share flight operated by Pinnacle’s Colgan Air unit, that killed 50 people near Buffalo, N.Y. two years ago.  A National Transportation Safety Board investigation concluded that both pilots might have been sleep-deprived, distracted and inadequately prepared for the emergency that led to the crash.

Many of the passengers booking that flight probably believed they were flying on Continental Airlines — not Colgan Air – and therein lies the problem: Critics charge that the way such flights are displayed on websites confuses some customers who buy tickets without knowing that some leg of their flight could be operated by a regional carrier with an entirely different safety record.

Enter the regulators — the Department of Transportation now requires every U.S. airline with more than $1 billion in annual revenue to give customers the name of each carrier that provides transportation on every flight segment of a passenger’s itinerary – before the ticket is purchased.  The airlines also must include the same information in the first website display that follows a search for specific flights.

That will make it easier for customers who prefer big names and big planes to evaluate alternatives to the code-share flights, potentially affecting these carriers’ passenger volume.

Regional airlines had a lot on their plates before the new disclosure rules came down — higher fuel prices, significant winter weather cancellations and greater complexity from acquisitions and fleet modernization.  Last week, Pinnacle cited higher aircraft acquisition and training expenses as the reason it swung to a fourth-quarter loss of $4.2 million in the fourth quarter, down from a $5.6 million profit in the same quarter 2009.

Flying high on its acquisition of ExpressJet Holdings, SkyWest said on Wednesday that its fourth-quarter profit doubled from a year earlier. Meanwhile, Republic posted a fourth-quarter loss even though revenue grew.

All of the regional players, however, have seen their stocks slide along with major carriers in recent weeks as fuel prices skyrocket.

Bottom line: Enhanced code-share disclosures can hit airline operations by reducing the number and frequency of code-share flights, as customers vote with their feet in favor of major airlines and larger planes.  In that scenario, airlines likely will have to scale back service to rural or secondary airports, raising costs and reducing profitability. 

Alternatively, major carriers can work with their regional partners to boost training programs and embrace procedures that enhance flight safety. But either approach will boost operating costs in the short run, eating into revenue at a time when regardless of size, airlines can least afford it.