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.
July 8, 2009
Flying to Ithaca: The Olympic Epic Continues
Another chapter was written Monday in the legal odyssey involving the European Commission and the Government of Greece concerning State aid the latter provided to Olympic Airways, its longsuffering national carrier whose corporate structure has been twice transmogrified over the last six years to keep it (barely) flying. See previous discussions of Olympic on the blog here and here. The European Court of Justice fined the Greek Government euro 2 million for its failure to comply with an earlier ruling ordering the scofflaw State to adhere to a 2003 decision from the Commission demanding recovery of all illegal aid granted to Olympic. See Case C-369/07, Comm'n v. Hellenic Republic, 2009 E.C.R. 00 (publication pending) (available here). See also Commission Decision 2003/372, 2003 O.J. (L 132) 1; Case-415/03, Comm'n v. Hellenic Republic, 2005 E.C.R. I-3875. The latest ECJ decision also imposes a daily euro 16,000 fine which is set to begin in one month should Greece again fail to adhere to the Court's earlier ruling.
While the dispute is not the stuff Homeric hymns are made of, it is a reminder that the State aid phenomenon for airlines has not completely dissipated. Greece's steadfast refusal to follow the European Community's State aid rules with respect to its inefficient national carrier and its apparent willingness to take on substantial penalties for doing so demonstrates the extent to which national pride remains an animating force in air transport policy.
Air Canada to Bankruptcy Court?
There are reports circulating that Air Canada may file for bankruptcy protection if three of its five unions are unwilling to ratify agreements which include wage freezes and a 21 month moratorium on payments to the airline's pension plans. See Chris Sorensen, Analyst Predicts Full-Year Loss for Air Canada, Toronto Star (July 8, 2009) (available here); Francois Shalom, Air Canada in Disarray with Union, Montreal Gazette (July 6, 2009) (available here). If Canada's largest airline does file for protection, it would be the second time it has had to do so in six years. It would also give Air Canada the dubious distinction of being the first North American legacy carrier to seek protection in the courts since the global economic crisis hit.
Measuring the Airlines
Yesterday's Financial Times had an illuminating story on the way airlines, particularly low-cost carrier Ryanair, plays with its traffic numbers to support such boasting slogans as "[t]he world's favourite airline." See Kevin Done, Airline Publicity Dogfight Hides the Real Numbers, Fin. Times (July 7, 2009) (available here). In the end, despite the time-honored tradition of European airlines using their inflated carriage of international traffic on the Continent to bolster their global standing, U.S. carriers Delta (which now includes Northwest) and American Airlines still lead on the basis of total passenger traffic as measured by RPKs.
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." Id.at 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.
Id.at 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 id.at 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 id.at 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.