Tuesday, June 30, 2009

The Economic Impact of Regulation

According to the business news website StreetInsider, airline stocks have been adversely impacted by the recent filing from the Department of Justice on the pending application for Continental Airlines to join the Star Alliance with full antitrust immunity.  This comes after all major U.S. carriers save Southwest Airlines experienced double-digit falls last month in their stock value.  It will be interesting (and perhaps disconcerting) to examine the numbers once the Department of Transportation issues its final order on Star's application.  Undoubtedly the decision will signal investors as to the likelihood of American Airlines receiving final approve and immunity for its pending hook-up with British Airways and Iberia as part of the oneworld alliance.  A final decision from the DOT on that application is expected by the end of October.

June 30, 2009 | Permalink | Comments (0) | TrackBack (0)

More on the DOJ/Star Alliance Fallout

Today's Wall Street Journal has a good story on the Department of Justice's opposition to Continental Airlines joining a Star Alliance fully immunized from U.S. antitrust law.  A few points from the story worth considering:

  • "The Justice Department . . . technically has no authority over international aviation agreements, but it typically weighs in on such DOT rulings. In this case, however, it waited nearly two months after the comment period closed before registering its opinion with the DOT on Friday."
  • "The Justice Department's objections also could signal problems for a separate application for antitrust immunity by members of the oneworld group of carriers[.]"

  • "Unions representing United pilots and flight attendants also have signaled their opposition, contending the antitrust immunity would lead to the outsourcing of U.S. jobs."

The story which is beginning to unfold is that of interagency meddling and labor, which is currently enjoying the inflation of its political clout under the Democrats' regime, attempting to hold the alliance proceedings hostage out of malcontent.  A recent letter from United's flight attendants to the DOT "call[s] on the Administration to enact durable and meaningful provisions designed to insure an equitable measure of protections for workers" as part of the Star application.  See Press Release, Association of Flight Attendants-CWA, Flight Attendants Press DOT for Job Protections in UAL/CAL Alliance (June 30, 2009) (available here).  What these "durable and meaningful provisions" should look like is left unsaid.  What also seems to be left out of labor's concerns is any genuine reflection on what a highly restricted alliance could mean for United and Continental's market share.  If potential job losses are their real concern, they would do well to stay out of the way and let the airlines freely compete on a global level.

As for the interagency issue, there is no question that the DOJ's Antitrust Division is looking to take a hard line on enforcement and consumer protection.  See, e.g., Christine A. Varney, Assistant Attorney General, U.S. DOJ Antitrust Division, Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available here).  But even so, as the WSJ story correctly highlights, they are not the agency apportioned by statute to approve and, potentially, immunize intercarrier agreements involving foreign air transportation; the DOT is.  It's no secret the DOJ has been less-than-thrilled with the DOT's immunization powers.  In the words of former Assistant Attorney General Anne K. Bingaman: "It is not necessary for code share partners to receive antitrust immunity for any agreement that would not violate antitrust laws; and conduct that would violate antitrust laws should not be permitted, much less immunized."  Consolidation and Code Sharing: Antitrust Enforcement in the Airline Industry, Address to the ABA Forum on Air and Space Law, Washington, D.C. (Jan. 25, 1996) (available here).  In the 13 years since this protest was made, Congress has not seen fit to divest the DOT of its broad immunization powers, nor has it made the move to allow airlines to consummate crossborder mergers.  This latter fact is telling about why airlines have sought the "pseudo-merger" benefits of alliances, especially in a commercial environment where consumers have come to expect and rely upon the route networks alliances provide.  See Michael E. Levine, Commentary, Airline Alliances and Systems Competition: Antitrust Policy Toward Airlines and the Department of Justice Guidelines, 45 Houston L. Rev. 333 (2008).  If the U.S. has finally reached that "absolute moment" in the history of airline regulation where antitrust immunity appears as nothing other than a dark artifice whose purpose and logic have been extinguished by the light of authentic liberalization, then let the citizenship purity rules for airline ownership be vanquished and the noble knights of competition protection at the DOJ stand guard.  If not, then these knights serve as nothing more than Praetorians of protectionism with the DOT's antitrust immunity power the only shield between them and the freedom of the airlines to operate international services efficiently and effectively in a globalized world.

June 30, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, June 29, 2009

DOJ Contra Star Alliance

When it was first discussed on the blog that the Department of Justice's Antitrust Division would, in the words of U.S. Attorney General Eric Holder, "have some input" into the pending final order for Continental Airlines to join the Star Alliance with antitrust immunity, some concern was raised that the DOJ would suggest "carving out" certain routes covered by the alliance's carriers from immunization.  This seemed problematic, especially since the Department of Transportation, the administrative agency exclusively endowed by statute with the power to approve and immunize intercarrier agreements involving foreign air transportation, see 49 U.S.C. §§ 41308-09, had found that standing carve outs for the Star Alliance (specifically the Chicago/Frankfurt and Washington/Frankfurt markets) were no longer necessary.  See Dkt. No. OST-2008-0234, Order 2009-4-5 (Apr. 7, 2009), at 10-11.  It now appears that the DOJ disagrees with that line of thinking and disagrees vehemently. 

According to a 55-page submission filed last Friday, the DOJ is requesting the Transportation Department "deny the broad requested immunity [for the expanded Star Alliance] and instead grant a more limited immunity."  See Dkt. No. OST-2008-0234, Comments of the Department of Justice on the Show Cause Order (June 26, 2009), at 2 (available here).  This "more limited immunity" should, according to the DOJ, "carve out the transatlantic and transborder markets where competitive harm is most likely to occur, maintain existing carve outs, and limit immunity to transatlantic markets."  Id.at 36.  Thus, in addition to retaining the carve outs the DOT had indicated it was willing to eliminate, the DOJ is urging that ten additional routes be added and that the carve outs not be restricted to only certain fare classes on these routes.  See id. at 39-40.  The DOJ's submission also recommends that any antitrust immunity offered to Star be strictly limited to the transatlantic market on fear that global immunity "would eliminate competition" and "increase the risk of spillover effects" in the U.S. domestic market with respect to Continental and United's operations.  See id. at 42.

While further analysis on the blog of the DOJ's submission is forthcoming, it should be noted that the DOT is under no statutory obligation to adhere to the Justice Department's suggestions.  On the other hand, with the Senate Judiciary Committee clearly standing behind DOJ's involvement (see earlier discussion on the blog here) and the House having already passed a version of the 2009 FAA Reauthorization Act which would sunset all antitrust immunity for international alliances, the DOT may find the political pressure too strong to resist.  Indeed, resistance may quickly lead to Congressional action rescinding or, at the very least, tightly conditioning the agency's longstanding approval and immunization powers altogether. 

June 29, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, June 19, 2009

Economic Analysis of Hub Dominance

University of Virginia Economics Professors Federico Ciliberto and Jonathan W. Williams's working paper, Limited Access to Airport Facilities and Market Power in the Airline Industry (SSRN Working Paper Series, Feb. 12, 2009), may be of interest to blog readers.  The abstract reads as follows:

We investigate the role of limited access to airport facilities as a determinant of the hub premium in the US airline industry. We use original data from competition plans that airports are required to submit to the Department of Transportation in compliance with the Aviation Investment and Reform Act for the 21st Century. We collect information on the availability and control of airport gates, on leasing and sub-leasing arrangements, and on restrictions that airport face to expand their facilities.

We find that the hub premium is increasing in the ticket fare. We show that control of gates leased on an exclusive basis is a crucial determinant of the hub premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures out of an airport.

The paper may be downloaded from SSRN here.

June 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 18, 2009

DOJ to Offer Input on Star Alliance

According to several news outlets, see, e.g., CNN Money here; Chicago Daily Herald here; & Business Week here, U.S. Attorney General Eric Holder has "reached out to the Department of Transportation" to request that the Department of Justice's Antitrust Division "have some input" into the pending final order for Continental Airlines to join the Star Alliance.  As discussed on the blog last week, the Senate Judiciary Committee issued a letter to Transportation Secretary Ray LaHood requesting the DOT suspend delivering a final order approving and granting antitrust immunity to the alliance until the DOJ could assess the venture.  While both Continental and United Airlines have publicly proclaimed confidence that they will receive final approval, a report which first appeared in the Financial Times stated that the DOJ is looking to "carve out" certain routes from immunization, specifically Newark/Frankfurt.  Under the tentative approval order issued in April, the DOT had planned to remove its preexisting carve outs for the Chicago/Frankfurt and Washington/Frankfurt city pairs.  Now that the DOJ is getting involved, that may no longer be the case.

Despite Holder's assurance that any DOJ inquiry will be over in a matter of weeks, it's important to bear in mind that Star is receiving disproportionate scrutiny from U.S. officials.  SkyTeam, which includes the recently formed Delta/Northwest entity, received a comparative free pass from the DOT on its alliance application.  Depending on the scope of conditions imposed by the DOJ (done under the auspices of "protecting consumers"), regulators may be establishing an inequitable playing field for the transatlantic market and thus undermining the full consumer benefits robust competition between multiple alliances could bring.  No doubt the ongoing oneworld application, which includes American Airlines, British Airways, and Iberia, will also be subject to a DOJ investigation and potential conditions.  With lawmakers and competing airlines (most notably Virgin Atlantic) loudly protesting BA and AA's potential to dominate the U.S./London Heathrow market within an immunized alliance, oneworld may be forced to accept an impaired approval.

June 18, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 17, 2009

Remembering the CAB

With the publication of the U.S. Treasury Department's white paper, Financial Regulatory Reform: A New Foundation (July 17, 2009) (available online here), there should be little doubt that the Government is in a "reregulatory mood" at the moment.  The chances of this interventionist mentalité extending in-full to civil aviation remain, hopefully, slim.  That doesn't mean there hasn't been cause for concern.  As chronicled on the blog, the U.S. House of Representatives have already passed a version of the 2009 FAA Reauthorization Act which could bring down the international airline alliance system within three years and place serious roadblocks to an enhanced second stage air transport agreement between the U.S. and European Community.  Even so, this is a far cry from the four plus decades when the Civil Aeronautics Board held monopoly oversight power on airlines' rates, routes, and services and waved a wand of antitrust immunity far more potent than any in U.S. regulatory history. 

For those readers of the blog interested in refreshing their memories on the CAB and its demise or, due to time of birth, too young to recall when the CAB roamed the regulatory landscape, the following articles from the archives may be of interest:

  • Comments, Civil Aeronautics Board Policy: An Evaluation, 57 Yale L.J. 1053 (1948);
  • Richard D. Cudahy, The Coming Demise of Deregulation, 10 Yale J. on Reg. 1 (1993);
  • Paul S. Dempsey, Rate Regulation and Antitrust Immunity in Transportation: The Genesis and Evolution of This Endangered Species, 32 Am. U. L. Rev. 335 (1982);
  • Paul S. Dempsey, The Rise and Fall of the Civil Aeronautics Board, 11 Transp. L.J. 91 (1979);
  • Robert M. Hardaway, Transportation Deregulation (1976-1984): Turning the Tide, 14 Transp. L.J. 101 (1986);
  • Edward M. Kennedy, Airline Regulation by the Civil Aeronautics Board, 41 J. Air L. & Com. 607 (1975);
  • John J. Farrell, Comment, The Civil Aeronautics Board as Trustees of the Public Interest, 5 U.S.F. L. Rev. 392 (1971);
  • Christopher L. Manos, Note, Airline Deregulation and Service to Small Communities, 57 N.D. L. Rev. 607 (1981);
  • John T. McGoldrick, Jr., Note, The Impact of the Civil Aeronautics Board's Regulation of Price Structure on the Airline Industry, 10 Ga. L. Rev. 619 (1976);
  • John G. Murphy, Jr., Comment, C.A.B. Regulation of Fares of Foreign Airlines, 11 Colum. J. Transnat'l L. 276 (1972);
  • William A. Paterson, Stewardship of the Airlines by the Civil Aeronautics Board, 15 J. Air L. & Com. 390 (1948); and
  • Jerrold Scoutt, Jr. & Coates Lear, Regulation by the Civil Aeronautics Board of the Ownership and Control of Air Carriers, 27 J. Air L. & Com. 247 (1960).

June 17, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 11, 2009

Senate Judiciary Committee on Alliances

Despite winning tentative approval and antitrust immunity from the Department of Transportation last month, the expanded Star Alliance--which is set to include Continental Airlines--may have to put its plans on standby.  In a letter sent on June 8 to Transportation Secretary Ray LaHood (available online here), Senate Judiciary Committee members Herb Kohl (D), Orrin Hatch (R), and Patrick Leahy urged the DOT not to issue a final order on the Star application "until the Justice Department has had a full opportunity to submit formal comments."  The letter also "entreat[s] the DOT to adopt any proposed conditions recommended by the DOJ which are intended to serve the interest of competition."  The letter closed by expressing the senators' "firm belief" that the DOT should refrain from acting on any alliance application "until all interested government agencies" have "an opportunity to assess the impact those grants might have on American consumers and the American economy."  The letter also mentioned the ongoing DOJ/European Commission study of international alliances and asked the Department to "be cognizant" of it.

As readers of the blog may recall, the DOT's tentative approval for the Star application was issued despite Rep. James Oberstar's legislative proposal to sunset all antitrust immunity for international airline alliances.  Since then, the House of Representatives has passed the proposal as part of the 2009 FAA Reauthorization Act, H.R. 915, 111th Cong., though the Senate has yet to vote on it.  While some analysts believe Rep. Oberstar's proposal will ultimately be dropped from the final version of the bill, it appears that the alliance system will remain under heavy political scrutiny.  The Judiciary Committee's letter may also signal a more expansive role for the DOJ in the alliance application process.  Given the DOJ's recent turn toward tough rhetoric on antitrust enforcement and consumer protection, see, e.g., Christine A. Varney, Assistant Attorney General, U.S. DOJ Antitrust Division, Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available online here), even if the present alliance system survives, it may be forced to do so under a wide banner of new restrictions. 

June 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 10, 2009

Iceland and Norway to Join U.S./EC Air Transport Agreement

In an underpublicized move, the European Commission sent a proposal to the Council last month to allow Iceland and Norway to accede to the 2007 U.S./EC Air Transport Agreement.  See European Commission, COM (2009) 229 final (May 15, 2009) (available online here); see also European Commission, COM (2009) 226 final (May 15, 2009) (available online here).  If the accession request is approved, it will mark the first time the 2007 Agreement has acted in fact, if not in principle, as a plurilateral agreement.  See 2007 U.S./EC Air Transport Agreement, art. 18(5), 2007 (O.J. L 134) 4 (extending the Agreement to third parties following the development of conditions, procedures, and necessary amendments). 

For those unfamiliar with the concept, plurilateral agreements offer non-parties the opportunity to accede after the agreement has come into effect among its founding parties, but typically the latecomers must accept the terms of the agreement in their entirety.  See Restatement (Third) of Foreign Relations Law of the United States sec. 312 (1987).  While the 2007 Air Transport Agreement is not expressis verbis a plurilateral, the Commission's recent proposal leaves no doubt that both parties are treating it as such.  As the Commission document states, the U.S. and EC developed the accession proposal together through the Joint Committee established by Article 18 of the Agreement.  See COM (2009) 229 final, supra, at 2.  With Iceland and Norway already "hav[ing] adopted the complete acquis communautaire in aviation policy," id., and the proposal itself making no modifications to the 2007 Agreement, see id. at 4, their accession will be in full harmony with the nature of plurilaterals.

June 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 9, 2009

Bisignani's 2009 State of the Air Transport Industry Address

The International Air Transport Association has posted its Director General and CEO Giovanni Bisignani's 2009 "State of the Air Transport Industry" address online.  The address, which was delivered at IATA's Annual General Meeting and World Air Transport Summit in Kuala Lumpar, Malaysia, will not surprise many who have followed the industry's turmoils over the last two years: the abatement of 2008's skyrocketing fuel costs came at the price of a worldwide economic downturn; a new thrust of skepticism toward globalization has resulted in protectionist proposals; government intractability on eliminating foreign investment restrictions for airlines; and rising taxes for aviation.  Admittedly, after reading Bisignani's speech, one might wonder whether it is still IATA's mission to "represent, lead and serve the airline industry" or if it hasn't changed to being the industry's prophet of doom.

June 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, June 5, 2009

IALI at Beijing Aviation Conference

Faculty and associates of the International Aviation Law Institute (IALI) participated in the Key Issues in International Aviation Law Conference held in Beijing, China on May 27, 2009.  The conference, which was co-hosted and organized by DePaul University College of Law's Asian Legal Studies Institute and the BeiHang University School of Law, covered topics ranging from anti-monopoly issues to the militarization of outer space. 

IALI Co-Director, Prof. Michael Jacobs, gave a welcoming address at the Conference and spoke on the status and background of the expansive air cargo price-fixing conspiracy which has resulted in record fines being assessed by authorities in China, the United States, and the European Union to a number of major international carriers.  Jacobs, an internationally recognized expert on antitrust and competition law, has recently written on this subject for the Institute's journal.  See Some Lessons From the Freight-Forwarding Cartel, 8 Issues Aviation L. & Pol'y 67 (2008).

Also speaking at the Conference was IALI Advisory Board member Sandra Chiu who is the Principal at the Center for Aviation Policy & Economics and the former Director of International Affairs at United Airlines.  Chiu offered thoughts on the future of U.S./China aviation relations and the prospects of establishing an open skies agreement between two of the world's leading economic powers. 

In addition, the Conference featured a presentation on the regulation/deregulation of the Brazilian air transport sector by Prof. Respico A. Espirito Santo, Jr., President of the Brazilian Institute of Strategic Studies and Public Policies in Air Transport.  A number of Prof. Santo's studies in this area also can be found in the Institute's journal archives.  See Roberta de Roode Torres et al., The Air Cargo Market in Brazil, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 10,401, at 4331 (2004); Respicio A. Espirito Santo Jr. & Fabio Cardoso Correia, Airport Privatization in Brazil, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 20,351, at 10,411 (2004); Respicio A. Espirito Santo Jr. & Marcio Peixoto de Sequeira Santos, Building the Common Aviation Area of the Americas, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¶ 25,301, at 13,261 (2004).

June 5, 2009 | Permalink | Comments (1) | TrackBack (0)

Wednesday, June 3, 2009

More Recommended Reading

As a follow-up to Monday's list of recent noteworthy articles on aviation law (and related fields), here is a list of some books from 2008-09 which blog readers may wish to peruse.

  • Acim I. Czerny et al. (eds.), Airport Slots: International Experiences and Options for Reform (Ashgate Publishing, 2008);
  • Paul Stephen Dempsey, Public International Air Law (McGill University, 2008);
  • Francis Lyall & Paul B. Larsen, Space Law: A Treatise (Ashgate Publishing, 2009);
  • Dawna L. Rhoades, Evolution of International Aviation: Phoenix Rising (Ashgate Publishing, 2d ed. 2008);
  • Martin Staniland, A Europe of the Air? The Airline Industry and European Integration (Rowman & Littlefield, 2008);
  • Niels van Antwerpen, Cross-Border Provision of Air Navigational Services with Specific Reference to Europe (Kluwer Law International, 2008);
  • Bijan Vasigh et al., Introduction to Air Transport Economics: From Theory to Applications (Ashgate Publishing, 2008);
  • Clifford Winston, Aviation Infrastructure Performance: A Study in Comparative Political Economy (Brookings Institute Press, 2008)

June 3, 2009 | Permalink | Comments (1) | TrackBack (0)

Monday, June 1, 2009

Recommended Reading

With most law schools adjourned for the summer, readers of the blog may want to take some time to catch-up on some of the better articles published in 2009 dealing with air transport regulation (and related topics).  While this list is by no means exhaustive and, in many respects, skewed toward the economic regulation of international aviation, it will hopefully prove helpful for those seeking to deepen their knowledge of the latest developments in the field.  

  • Monica Hargrove Kemp, Mechanisms for Addressing Capacity-Related Delays at U.S. Airports, Air & Space Law., 2009 No. 2, at 1;
  • Huang Jiefang, Aviation Safety, ICAO and Obligations Erga Omnes, 8 Chinese J. Int'l L. 63 (2009);
  • Michael Kolber, Rulemaking Without Rules: An Empirical Study of Direct Final Rulemaking, 72 Alb. L. Rev. 79 (2009);
  • Michael E. Levine, Airport Congestion: When Theory Meets Reality, 26 Yale J. on Reg. 37 (2009);
  • Peter Macara, Foreign Ownership of Airlines: The End of Flying the Flag?, Air & Space Law., 2009 No. 2, at 13;
  • Stefan Talmon, The Recognition of the Chinese Government and the Convention on International Civil Aviation, 8 Chinese J. Int'l L. 135 (2009);
  • Carlos Grau Tanner, New Proposals to Break the Foreign Ownership Deadlock in the Airline Industry, 34 Air & Space L. 127 (2009);
  • Adrian Vermeule, Our Schmittian Administrative Law, 122 Harv. L. Rev. 1095 (2009);
  • Christopher M. Weimer, Note, Foreign Direct Investment and National Security Post-FINSA 2007, 87 Tex. L. Rev. 663 (2009); 
  • David J. Weiner, Recent Developments in Aviation Law, 44 Tort Trial & Ins. Prac. L.J. 245 (2009); and
  • Christian Westra, Note, The April 2007 U.S.-EU "Open Skies" Agreement: A Dream of Liberalization Deferred, 32 B.C. Int'l & Comp. L. Rev. 161 (2009).

June 1, 2009 | Permalink | Comments (0) | TrackBack (0)