Monday, July 6, 2009

American's Riposte to the DOJ

On Monday, both Continental Airlines and its fellow joint applicants from the Star Alliance along with American Airlines filed separate responses to the Department of Justice's recent comments on the pending Star application.  See previous discussion on the blog here and here.  While Star's response is certainly worth reading, the American filing is particularly noteworthy for calling attention to the DOJ's dubious assertion that curtailing antitrust immunity for airline alliances won't jeopardize current and future open skies agreements.  See OST-2008-0234, Response of American Airlines, Inc. to Comments of the Department of Justice (July 6, 2009).

As American's filing states, the Department of Transportation's use of antitrust immunity as a means of enticing States to sign-on to open skies agreements "has gone a long way toward creating global competition by liberalizing markets and facilitating the emergence of broad networks capable of carrying passengers around the world." 3.  As laudable as that is, it's an unfinished project as "[m]ajor markets remain closed--such as Japan, China, Russia and Brazil.  Alliances will help open those markets to new competition--unless, of course, the [DOT] succumbs to pressure to turn back the clock."  Id.

As for the DOJ's rather troubling claim that restricting antitrust immunity for alliances would not harm existing open skies agreements, American offered a stern reminder that

the crown jewel of the [DOT's] [international aviation] policy--the [2007 U.S./EC Air Transport Agreement]--is not etched in stone.  Several EU Member States have expressed concerns that Phase I of the deal was too one-sided in favor of U.S. carriers (which gained access to Heathrow), while EU carriers gained little.  The UK and Spanish governments (which were instrumental to the success of the U.S.-EU negotiations) may well decide to exercise their right to unwind the agreement if their consumers are denied the benefits of networks at Heathrow and Madrid [i.e., the hubs of oneworld alliance partners British Airways and Iberia] that can compete with those in Paris, Frankfurt and Amsterdam.  Such "international comity and foreign policy considerations" are directly relevant in adjudicating antitrust immunity cases. 4 (citation omitted).

In addition to its deft analysis of the adverse impact the DOJ's suggestions would have on U.S. international air transport policy, American also offered a detailed discussion of the competitive imbalances which would be created by curtailing immunity for the Star and oneworld alliances while SkyTeam operates with global immunity.  See 4-7.  The filing also contains a critique of the DOJ's carve-out proposals for the Star Alliance and contends that they rest on a number of flawed assumptions about the aviation market.  See 7-14.  It will be interesting to see if American's criticisms resonate with the DOT when the final order is handed down and whether they will prompt the DOJ to revise its attack on antitrust immunity when it inevitably files objections to the oneworld alliance's pending application.

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