Monday, September 28, 2009
A news report from late last week discussed the possibility of a possible U.S./Japan open skies agreement being reached as part of JAL's efforts to attract a substantial equity investment from either American Airlines or Delta Air Lines. See John Crawley, Alliances Take Center Stage in U.S.-Japan Aviation Talks, Reuters, Sept. 24, 2009 (available here). Earlier discussions of JAL's predicament and the place of U.S./Japan aviation talks in them may be found on the blog here and here.
The news story deserves praise for properly focusing the discussion on the alliance system and the future of antitrust immunity as part of the U.S. open skies policy. While not an "official" element of open skies, cf. In the Matter of Defining Open Skies, 3 Av. L. Rep. (CCH) ¶ 26,960, at 23,901 (Aug. 5, 1991), antitrust immunity has long served as the "bait" on which the U.S. has "hooked" open skies partners in the past (most notably the Netherlands, France, and Germany in the 1990s). During the Continental/Star Alliance antitrust immunity proceeding earlier this year, the Department of Justice downplayed the importance of antitrust immunity to U.S. international aviation policy. See Dkt. No. OST-2008-0234, Comments of the Department of Justice on the Show Cause Order (June 26, 2009). In a filing supporting the Continental/Star application, American Airlines responded directly to the DOJ's contention by highlighting that the Department of Transportation's use 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." OST-2008-0234, Response of American Airlines, Inc. to Comments of the Department of Justice (July 6, 2009), at 3. It also rightly noted that open skies is 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.
Thankfully, the DOT resisted the pressure to "turn back the clock" in approving (albeit with some caveats) the Continental/Star application. See "DOT Approves the Expanded Star Alliance." That doesn't necessarily mean it's moving forward, however. The pending oneworld Alliance application provides the DOJ with another opportunity to attack the alliance system, including providing it with antitrust immunity. The 2009 FAA Reauthorization Act, which would sunset all of the alliance's antitrust immunity, has been put on hold, but for how long? Japan, which has been historically adverse to open skies, will no doubt keep a close eye on regulatory developments in the U.S. before moving ahead on liberalizing its aviation market. If neither of its international carriers, JAL and ANA, are able to secure immunized membership in a major alliance, then a major incentive to sign an open skies bilateral will be gone. In that case, both Japanese and U.S. airlines lose out. As it stands, only United Airlines and Northwest have full access into the Japanese market. (See correction to news reports to the contrary here.) With open skies, any U.S. carrier ready, willing, and able to compete in the transpacific market could add Japan to its list of destinations. If the U.S. is still serious about creating competitive air transport markets around the world, liberalizing its aviation agreement with Japan is absolutely necessary.