August 14, 2009
Continental to Join Star in October
After clearing a needless protracted approval process, Continental Airlines announced that it will officially join the Star Alliance on October 27. See Doug Cameron, Continental to Join Star Alliance, Wall St. J., Aug. 13, 2009 (available here). According to the report:
The quick move into Star will allow Continental to leverage its new partners' route networks and frequent flyers at a time when airlines face a slump in demand, notably among high-margin business passengers.
The carrier was invited to join Star by UAL Corp., after it rejected a merger in favor of a commercial pact with the parent of United Airlines, a founder member of the alliance alongside Deutsche Lufthansa AG.
It was also wooed by the third airline group, Oneworld, led by American Airlines' parent AMR Corp. and British Airways PLC, which is seeking to match the antitrust approval for cooperation secured by Star and SkyTeam.
What the link-up also means is that SkyTeam will have an authentic competitor in the transatlantic market, a definite boon for consumers looking for cheaper, more convenient, travel options in tough economic times. This competitive situation would no doubt be improved by a third grant of approval and immunity to oneworld despite the protestations of competing carriers like Virgin Atlantic. Until that approval comes down, there will remain lack of parity in the market.
Reminder on Horan's Guest Post
For those who may have missed it, blog readers should make it a point to read Hubert Horan's guest posts on consolidation and alliances here. It makes for timely reading, particularly given the new wave of public scrutiny being paid to the pending American Airlines/British Airways link-up.
August 13, 2009
Branson Contra BA/AA/Iberia
Sir Richard Branson won't quit. His public campaign against the pending approval and antitrust immunity for oneworld Alliance carriers British Airways, American Airlines, and Iberia has now turned toward direct appeal to U.S. President Barack Obama. According to a letter from Branson to Obama:
Never before has the US government approved an anti-trust immunity application where barriers to entry are so significant that any new meaningful competitive entry is virtually impossible[.]
If their proposals were to be approved, AA-BA would have a monopoly, or near monopoly, on some of the busiest and most profitable routes from the US to Europe.
AA-BA are seeking ATI authority to jointly set prices and co-ordinate capacity and schedules because it will enable them to squeeze existing US-Heathrow competitors off key routes. If AA-BA win, it will be an unprecedented loss for consumers.
See Alistair Osborne, Sir Richard Branson's Plea to Barack Obama, Telegraph, Aug. 13, 2009 (available here) (quotation marks omitted).
Branson also has an op-ed piece in the Telegraph decrying the link-up. See Dinosaurs BA and AA Should Not Be Given a Free Meal Ticket to Merge, Aug. 12, 2009 (available here).
Extracting Money for Disgruntled Passengers in the EU
Depending on your point of view, Daniel Michaels's A Robin Hood for Inconvenienced Fliers in Europe, Wall St. J., Aug. 12, 2009 (available here), will either inspire adulation or repulsion. From the story:
Travelers heading to Europe may want to scribble an extra address on their trip agenda: Hendrik Noorderhaven's Web site.
The Dutch software executive is emerging as a Robin Hood of sorts for disgruntled airline passengers in Europe. His company, EUclaim, helps fliers win penalty payments of up to €600 (about $850) from airlines for long delays and canceled flights and for bumping passengers from flights against their will.
. . .
Enter Mr. Noorderhaven. He has spent the past eight years—and invested some €3.5 million, or $5 million—trying to make carriers pay for passengers' inconvenience. His staff has tapped dozens of sources of information on air traffic, airport operations and weather conditions to build and constantly update a database of every flight in Europe's skies.
August 12, 2009
Passenger Rights Reading List
Blog readers interested more in the legal and policy matters surrounding passenger rights, both in the U.S. and abroad, may want to consult the following articles:
Usha Balasubramaniam, Air Passenger Health and Consumer Protection, 73 J. Air L. & Com. 675 (2008)
Ruth Bamford, Air Passenger Rights, 2007 Int'l Travel L.J. 74 (2007)
Arnold Kinga, Application of Regulation (EC) No 261/2004 on Denied Boarding, Cancellation and Long Delay of Flights, 32 Air & Space L. 93 (2007)
Ruwantissa I.R. Abeyratne, Sustainability of Air Carriers and Assurance of Services, 68 J. Air L. & Com. 3 (2003)
Daniel H. Rosenthal, Note, Legal Turbulence: The Court's Misconstrual of the Airline Deregulation Act's Premption Clause and the Effect on Passengers' Rights, 51 Duke L.J. 1857 (2002)
Timothy M. Ravich, Re-Regulation and Airline Passengers' Rights, 67 J. Air L. & Com. 935 (2002)
Timothy M. Ravich, Flight or Fight: The Airline Passengers' Bill of Rights, 2001 Int'l Travel L.J. 102 (2001)
Audrey Johnson, Consumers and Congress Lobby for Airline Customer Service Improvements: Voluntary Action or Legislation, 13 Loy. Consumer L. Rev. 402 (2001)
Zachary Garsek, Giving the Power Back to Passengers: The Airline Passengers' Bill of Rights, 66 J. Air L. & Com. 1187 (2001)
Joyce McLaughlin, Comment, Overbooking and Denied Boarding: Legal Response in the Last Decade, 54 J. Air L. & Com. 1135 (1989)
The Passenger Rights Revival
According to a story from the Associated Press, the U.S. Department of Transportation is investigating the seven-hour "stranding" of Continental Express Flight 2816 on a Rochester, Minnesota tarmac last Friday. See Joan Lowy, Gov't Asking Why Airline Passengers Were Stranded, Assoc. Press, Aug. 12, 2009 (available here). From the story:
Transportation Department and Federal Aviation Administration lawyers are combing through aviation and consumer regulations looking for possible violations.
"While we don't yet have all the facts, this incident as reported is very troubling," LaHood said in a statement Tuesday.
The incident may also boost legislation pending in the Senate that includes a provision requiring airlines to return passengers to the gate after a three-hour tarmac delay. The provision gives the flight's captain the power to extend the tarmac wait by a half-hour if he has reason to believe takeoff clearance is likely to come soon. The captain would also have the power not to return passengers to the gate if he felt doing so was unsafe.
In other words, attorneys and officials well versed in DOT regulations and applicable federal law realize that no clear violation occurred and yet are committed, for the sake of the media attention this unfortunate incident has received, to spending time and resources (or, at least, claiming to spend time and resources) to take punitive measures against Continental. Of course, if there were clear regulations on the books to address this type of incident, there probably wouldn't be any apparent need for the passenger rights provision inserted into the 2009 FAA Reauthorization Act, S. 1451, 111th Cong. sec. 401 (2009); cf. H.R. 915, 111th Cong. sec. 407 (containing no mention of the three-hour delay rule).
For those interested in what the airlines have to say about delays and the infrastructure constraints which are largely responsible for them should consult James May, President and CEO of the Air Transp. Assoc., Airline Delays and Consumer Issues, Statement Before the Subcommittee on Aviation (Sept. 26, 2007) (available here).
August 11, 2009
Did the Airline Tariff Publishing Case Reduce Collusion?
A forthcoming article from the Journal of Law and Economics looks at the 1992 tariff publishing case and assesses its effect on airline collusion. See Amalia R. Miller, Did the Airline Tariff Publishing Case Reduce Collusion? (June 2009). The abstract, which is available through SSRN here, reads:
In December 1992, the US Department of Justice filed suit against eight major domestic airlines and the Airline Tariff Publishing Company in order to reduce opportunities for collusion in the industry. The lawsuit ended with consent decrees limiting the ability of airlines to communicate surreptitiously through the shared fare database. This paper measures the effects of the litigation and its settlement on industry performance, comparing changes in outcomes between market segments that were more and less likely to be affected by the ATP case. Prices fell in response to the investigation, but increased following the settlement, while the number of tickets sold in affected markets declined. The importance of multi-market contact also dropped and then recovered. The ATP case had at best a temporary effect on airline collusion.
DOT Pro-Consumer Crackdown
The Department of Transportation announced yesterday that it was levying a series of fines against Hawaiian Airlines and US Airways for failure to properly disclose their codeshare arrangement to customers and a seperate fine against Continental for failing to adhere to the DOT's advertising regulations. See Press Release, DOT, DOT Fines Three Airlines for Violations of Consumer Rules (Aug. 10, 2009) (available here). All of the relevant consent orders are available through Dkt. No. OST-2009-0001.
August 10, 2009
The Economic Impact of the ETS
According to a new report issues by the consulting firm Point Carbon, the European Union's plan to bring civil aviation into its emissions trading scheme (ETS) could cost the airline industry €1.1 billion. See Press Release, Point Carbon, Airlines May Face €1bn Carbon Trading Cost From 2012 (Aug. 3, 2009) (available here). As the press release states:
To indicate the scale of the possible cost, at today’s spot price, €14.40 per tonne of CO2 (as at 21 July 2009), the cost to the industry would be over one billion euros (€1.1 billion). “Emissions trading will increase cost pressure on airlines. They will look to pass on at least some of this cost to passengers”, said Andreas Arvanitakis, co-author of the report and a senior analyst at Point Carbon.
British Airways faces the largest shortfall of the EU-registered airlines at 3 million tonnes of CO2 in 2012, equivalent to €43m at today’s spot price for carbon. This is more than the total shortfall for all Spanish airlines. However, American carriers will face the largest bill. The scheme will cover all flights that land or take off within the EU, including those operated by companies registered elsewhere, so intercontinental flights are covered.
“The American carriers in the scheme will be the first sector in the US to be drawn into mandatory international emissions trading, even though it is implemented by the EU,” Mr Arvanitakis said. “This comes just as an emissions trading bill is being considered by Congress and the Administration is engaging in international climate negotiations.” US airlines Delta Air Lines and United Airlines come in ahead of British Airways, with shortfalls of 3.5mt and 3.3mt respectively. Qantas and American Airlines come in with predicted shortfalls of 2.6mt and 1.7mt respectively.
Those interested in reading the full report may do so by contacting Point Carbon at one of the e-mail addresses listed at the bottom of their press release.
Senate Steps In on BA/AA Alliance
The Senate Judiciary Committee, no doubt unsatisfied with the outcome of the Continental/Star Alliance proceeding, is planning to hold a hearing next month on the pending British Airways/American Airlines/Iberia (oneworld) approval and antitrust immunity application. See Kaveri Niththyananthan, US Lawmakers to Scrutinize BA, AMR Pact - Sources, Dow Jones Newswires, Aug. 9, 2009 (available here). According to sources, Sir Richard Branson will be on hand to once again voice his objections to the link-up. Meanwhile, Virgin America, one of Branson's aviation brainchildren, remains under regulatory scrutiny concerning its ownership profile. See Petition of Alaska Airlines, Inc. to Institute a Public Inquiry into the Citizenship and Control of Virgin America, Inc., Dkt. No. OST-2009-0037 (Feb. 10, 2009).
August 9, 2009
Sunday Afternoon Reading on Regulation
Blog readers looking for a stimulating way to spend their Sunday afternoon may wish to access one of the online journal databases or rush down to their nearest law library to pull out a copy of Joseph D. Kearney & Thomas W. Merrill's landmark study, The Great Transformation of Regulated Industries Law, 98 Colum. L. Rev. 1323 (1998). In a time when we may be witnessing a new era of regulation taking shape, it makes for a compelling read.
From the abstract:
The nation's approach to regulating its transportation, telecommunications, and energy industries has undergone a great transformation in the last quarter-century. The original paradigm of regulation, which was established with the Interstate Commerce Act's regulation of railroads beginning in 1887, was characterized by legislative creation of an administrative agency charged with general regulatory oversight of particular industries. This approach did not depend on whether the regulated industry was naturally competitive or was a natural monopoly, and it was designed to advance accepted goals of reliability and, in particular, non-discrimination. By contrast, under the new paradigm, which is manifested most clearly in the Telecommunications Act of 1996, the goals of regulation have become the promotion of competition and maximization of consumer choice. The role of agencies has been reduced to monitoring access and pricing of "bottleneck" monopolies such as the local telecommunications loop and electricity distribution systems.
Having described this transformation in six core common carrier and public utility industries-railroads, airlines, trucks, telecommunications, electricity, and natural gas-the Article sets out on a quest to find its causes. No consistent pattern of institutional leadership can be discerned in any of the three types of government actors with the power to compel change: the regulatory agencies, the courts, and the Congress. This suggests that the causes are rooted in deep-seated economic and social forces, such as technological changes, and chain reactions that have emerged as regulatory reform in one industry segment has spread to another segment. The Article concludes that the two most persuasive explanations are that key interest groups have discovered that regulatoy change is in their interests, and that an ideological consensus has emerged among economists and other policy elites that the original paradigm entails risks of regulatory failure that exceed the risks of market failure under the new paradigm.