Monday, October 26, 2009

oneworld's Future to be Decided

A lead story in the Financial Times is reporting that the European Commission may order British Airways, American Airlines, and Iberia--all members of the oneworld Alliance--to surrender takeoff and landing slots at London Heathrow as the price for approval of their more integrated transatlantic alliance.  See Mark Mulligan, Antitrust Threat to Atlantic Air Alliance, Fin. Times, Oct. 26, 2009 (available here); see also Kaveri Niththyananthan, BA Sees No Reason to Cocede Heathrow Slots, Wall St. J., Oct. 26, 2009 (available here).

To BA and AA in particular, the warning from the European Commission must seem like a regress.  In 2002, five years before the signing of the U.S./EC Air Transport Agreement, the U.S. Department of Transportation conditioned its approval and antitrust immunity for their alliance on the surrender of 224 slots at Heathrow.  See U.S.-U.K. Alliance Case, Dkt. No. OST-2001-11029; see also Laurence Zuckerman, British Airways and American Cancel Alliance, N.Y. Times, Jan. 26, 2002, at C1.  The plan did not go through.  Since the end of March 2008, however, Heathrow slots have become more available and access to U.S. carriers widened from just AA and United Airlines.  Critics argue that the slots still remain scarce and expensive, but should that matter?  If AA and BA are using them at the 80% threshold set by European Community law, see Council Regulation 95/93, 1993 O.J. (L 14) 1, this should not immediately trouble anyone.  (What is troubling, however, is that the Commission opted to suspend the 80% threshold over the summer; but this act of protectionism is peripheral to the alliance issue.)  Both carriers are aware of the high price their slots could fetch in the secondary market and of the opportunity costs associated with slot retention.  If they fail to use their slots efficiently, they will suffer economically.  That's for the market to decide, however.

On the U.S. end, the DOT is expected to issue its preliminary decision this week on whether to extend antitrust immunity to the oneworld Alliance.  Despite an unprecedented amount of public attention being paid to how the agency parcels out antitrust immunity, there is good reason to hope that the Department will proceed with the immunization.  First, approval would create competitive parity between the three major transatlantic alliances and help discipline prices.  Second, it would reinforce the DOT's longstanding international aviation policy of extending antitrust immunity to crossborder link-ups involving carriers from States which have signed an open skies agreement with the U.S.  Last, but not least, approval could go some way toward appeasing both the U.K. and Spain, both of which are unlikely to be pleased with ongoing U.S. reticence toward extending EU airlines foreign investment and cabotage rights as part of a "second stage" U.S./EC Air Transport Agreement.  Of course, the immunization could all be for naught if the European Commission tightens the regulatory strictures on alliances and makes stringent demands on BA, AA, and Iberia.

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