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. ยงยง 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. 

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