Friday, July 10, 2009

DOT Approves the Expanded Star Alliance

Despite strong protests from the Senate Judiciary Committee and the Department of Justice's Antitrust Division, the Department of Transportation issued a final order today granting Continental Airlines approval and antitrust immunity to join the Star Alliance.  Here are some of the relevant portions from the DOT's official press release:

In the final order issued today, the Department granted immunity to new alliance member Continental and allowed Air Canada, Deutsche Lufthansa Airlines, United Air Lines, and Continental Airlines to place a portion of their international air services within a new joint venture, to be called Atlantic Plus-Plus. Under the venture, the carriers will jointly arrange capacity, sales and marketing, as well as share revenues in international markets.

The Department concluded that granting antitrust immunity to Continental to join the alliance and approving the joint venture was in the public interest because it would support increased levels of service in international markets served by the carriers, give consumers more travel options and shorter travel times, and reduce fares. The United States has open-skies aviation agreements with all of the home countries of the carriers involved in today’s decision. Open-skies agreements provide for international market access to all home-country airlines.

Following comments from the Department of Justice and other parties on DOT’s April 7 tentative decision, the Department placed new limitations on the immunity in several markets to preserve competition. These limitations, also called “carve outs,” affect four transatlantic markets, four markets between the United States and Canada, and all markets between the United States and Beijing, China. The Star carriers may continue to serve these routes, but they will not be covered by the grant of immunity at this time.

Press Release, U.S. Dept. of Transp., DOT Approves Star Alliance Plan to Add Continental, Establish Joint Venture, DOT 100-09 (July 10, 2009) (available here).

On the matter of carve outs, the DOT chose to retain the four existing Star Alliance carve outs identified in its tentative order--Washington/Frankfurt, Chicago/Frankfurt, San Francisco/Toronto, and Chicago/Toronto--until the joint venture between the Star Alliance members is fully implemented; at that point the two standing transatlantic carve outs will be eliminated.  See Dkt. No. OST-2008-0234, Final Order (July 10, 2009), at 19.  However, at the behest of the Justice Department, the DOT added four additional transatlantic carve outs between New York and Copenhagen, Lisbon, Geneva, and Stockholm.  See id.  But, according to the DOT, these carve outs are not etched in stone: "[S]hould a new entrant enter a 'carved-out' market with nonstop service, with at least five roundtrips per week for nine consecutive months . . . the carve-out provision for that market will cease to apply."  Id.  This provision of the DOT's order also applies to the additional carve outs it established--again in accordance with concerns expressed by the DOJ--on four U.S./Canadian markets, along with the U.S./Bejing market.  See id. at 20-21.

Even with the partial capitulation to the DOJ's call for carve outs to Star's antitrust immunity, the final order has to be seen as a victory for the airlines.  In the face of strong administrative and political pressure, the DOT has chosen to "stay the course" with respect to its international aviation policy and immunize alliances with partners from States which have signed open skies agreements.  The steadfastness of the DOT on this policy point certainly bodes well for the pending oneworld alliance application and for the Delta/Virgin Blue/Pacific Blue joint venture filed yesterday.  See Dkt. No. OST-2009-0155, Application for Approval of and Antitrust Immunity for Alliance Agreements (July 9, 2009).  It may not bode well, however, for the longterm future of the DOT's immunization authority.  With the Senate still reviewing the protectionist 2009 FAA Reauthorization Act and its proposal to sunset all antitrust immunity for alliances, it is surely not out of the question that the legislation could be "beefed-up" to include new restraints on what has become the DOT's most controversial air transport regulatory power.

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