Treaty Revives Antitrust Hopes

Jay Boehmer, Business Travel News, 4/23/2007

Airline alliance partners are charting the course to expanded cooperation afforded by last month's historic transatlantic Open Skies treaty. Star Alliance partners United Airlines and British Midland Airways this month filed with the U.S. Transportation Department for antitrust immunity, and SkyTeam carrier Northwest Airlines said the Open Skies agreement is spurring the alliance to expand transatlantic antitrust immunity.

Analysts and airlines expect antitrust immunity applications to flourish as the Open Skies treaty sets forth "new cooperation arrangements between competition authorities with a commitment to promote compatible regulatory approaches to alliance agreements and other cooperative arrangements between airlines." Antitrust issues—faced in at least some markets by all major airline alliances—have made it difficult to structure singularly priced alliance deals for corporate travel buyers, who have signaled a growing interest in alliance contracting.

"The more carriers you can put together within one agreement in an alliance, the more effective you will be at gaining the umbrella incentives," Management Alternatives vice president John Heilner said. "It becomes easier to negotiate the whole thing at once, so that's a good thing."

United and BMI said if the request is approved, the immunized carriers would offer increased competition across the Atlantic—particularly to entrenched carriers British Airways and American Airlines, which are "key members of the competing Oneworld alliance," the carriers noted in its DOT application.

The carriers filed with DOT to enact antitrust immunity on March 30, 2008—the expected start date of the Open Skies treaty.

Northwest and KLM said they would seek to include KLM parent Air France and other SkyTeam members in an immunized application. "Today, the broadest and most meaningful competition for consumers across the Atlantic is provided on an alliance-to-alliance basis," said Andrea Fischer Newman, Northwest senior vice president of government affairs. "We look forward to working with our partners and applying with the U.S. Department of Transportation for expansion of our antitrust immunity alliance."

While SkyTeam has yet to officially file its DOT request, Northwest said an expanded alliance would yield "new transatlantic flying and substantial consumer savings." SkyTeam's most recent attempt at furthering its immunity was not successful. Carriers in 2005 withdrew a request for antitrust immunity following resistance from DOT. The alliance partners said they would, at a later date, pursue their request . "DOT has said the new U.S.-E.U. agreement would satisfy key regulatory concerns about allowing the expanded alliance to proceed," Newman said.

United and BMI in 2001 filed a similar motion, which DOT approved pending passage of an earlier attempt at a U.S.-E.U. Open Skies agreement. DOT in 2002 said, "The United/BMI alliance, if combined with an Open Skies agreement, was consistent with its policy of promoting pro-competitive and pro-consumer international aviation alliances, and that it would increase travel options and competition in U.S.-transatlantic markets."

United and BMI in its filing this month said, "The conditions the department imposed on the effectiveness of its earlier grant of immunity to BMI have been satisfied." The application noted that a "review of the relevant markets confirms that the fundamental findings that supported the Department's earlier immunity grant remain true today."

United claims only 12 percent of U.S.-London traffic, compared with British Airways' 33 percent, Virgin Atlantic's 20 percent and American's 16 percent. In its DOT filing, United said antitrust immunity "will provide substantial benefits to consumers because it will allow the carriers to combine complementary route networks without any reduction of competition in any relevant market."

It added: "It is still the case that United and BMI operate no overlapping nonstop service."

Meanwhile, carriers on both sides of the Atlantic are seeking to expand their route structures following the bilateral agreement between the United States and the European Union. Continental was quick to announce plans to inaugurate flights between Houston and Heathrow before summer 2008, subject to approval. Delta, too, confirmed that it would seek slots at Heathrow.

Ireland-based Aer Lingus plans to launch long-haul service to San Francisco, Orlando and Washington Dulles. Ryanair CEO Michael O'Leary, meanwhile, reportedly is seeking to bring its no-frills model across the Atlantic.

American Airlines CEO Gerard Arpey last week acknowledged the new bilateral agreement will bring in more low-cost competition. "Fortunately we have several decades of experience of defending ourselves against low-cost carriers here in the U.S. It is an inevitable phenomenon."