Friday, August 28, 2009

Aviation Alliances & the Coming Global Antitrust Enforcement

Is a new wave of transnational competition enforcement coming?  That's what the American Antitrust Institute is agitating for.  See Think Tank Urges White House to Hike Diligence in Promoting Market Economies, 97 Antitrust & Trade Reg. Rep. (BNA) 216 (Aug. 21, 2009) (available here); see also Letter to Pres. Barack Obama from Albert A. Foer, Pres., AAI (Aug. 12, 2009) (available here).  According to the report:

In addition to the joint pronouncement, the U.S. government should take the lead in establishing an “International Competition Day,” when officials from the Federal Trade Commission and Justice Department's Antitrust Division would educate the public about “the benefits to consumers, world economic growth, and democratic values of competitive markets maintained through vigorous enforcement of the competition laws.”

. . .

An “International Competition Day,” the AAI indicated, should stem the current trend of “suspend[ing] antitrust enforcement as a hindrance to economic stability” in favor of putting antitrust policy at the forefront of the United States' response to the current economic crisis. In making an international statement in favor of market economies, the U.S. government would elevate the “underappreciated ‘American' institution” to gain public support on a global scale and prevent governments from losing focus on antitrust enforcement as a crucial tool in preserving economic growth and stability.
What the letter does not make clear is how more vigorous antitrust enforcement will help spur economic recovery.  Even if one is sympathetic with the AAI's endorsement of limited government involvement in the market, that hardly warrants sympathy for overexuberant antitrust enforcement which could stifle innovation.  In particular, as we have noted many times on this blog, international alliances for airlines.  The alliance system, as industry analysts and this blog have continually observed, are a "second best" option in an international operating environment which severely curtails (if not outright prevents) transnational airline mergers.  Though some have argued that the alliance system would likely persist even if the old nationality restrictions were dismantled, there would certainly be a far less compelling argument for why regulators should tolerate (if not outright immunize) their putative anticompetitive behavior.  Right now, however, the Department of Justice and lawmakers in the U.S. Senate are advocating a Schopenhauerian "worst of all possible worlds," namely no possibility for transnational mergers and severely circumscribed alliances.  This is in keeping with Assistant U.S. Attorney General Christine Varney's call for Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available here).  The AAI entirely supports this view.  Cf. Letter, supra, at 2.
What about other substantial aviation markets?  The European Commission has emphasized its "broadly positive approach" to airline alliances in order to allow European carriers to compete effectively on a global level.  See Competition: Commission Confirms Sending Statement of Objections to Members of SkyTeam Global Airline Alliance, Memo/06/243 (Jun. 19, 2006).  Neelie Kroes, Commissioner for Competition Policy, has stressed that EC policy encourages European airlines to become "global winners" even as it enforces its competition rules.  See Competition in the Aviation Sector: The European Commission's Approach, Address to the Conference Celebrating the 20th Anniv. of the Int'l Inst. of Air & Space L., Speech/06/247 (Apr. 24, 2006) (available here).  This doesn't mean ignoring the alliances.  See, e.g., Antitrust: Commission Opens Formal Proceedings Against Certain Members of the Star and Oneworld Alliances, Memo/09/168 (Apr. 20, 2009).  It does appear, however, to indicate that EC regulators are more sensitive to aviation's market realities and adjusting their enforcement policy accordingly.  The tolerance for alliances in the Asia-Pacific market remains uncertain, though pressure is being placed on Austalian regulators to block the recently proposed Delta/Virgin Blue/V Australia/Pacific Blue alliance.  See Matt O'Sullivan, Virgin Delta Tie-Up Opposed, Dominion Post, July 25, 2009 (available here).
A movement for stronger international competition law enforcement is not necessarily a bad thing.  If it is put in the service of supporting open aviation markets, then it could be a very good thing.  With respect to international civil aviation, however, such enforcement needs to be cognizant of the outmoded regulatory strictures placed on airlines.  The alliance system has and continues to provide important network and loyalty benefits for consumers.  These should not be so quickly obliterated in the fervor to halt allegedly anticompetitive practices.  By all indications, the global marketplace is crowded with air carriers; yet natural transborder consolidation is largely an impossibility.  Alliances, though perhaps economically, strategically, and commercially suboptimal, provide a needed degree of rationality to the sector.  The system of alliances cannot be suppressed until the airlines--the most visible global service providers in the world--are given to freedom to behave and thrive as globalized competitors.

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