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.

August 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 27, 2009

Alliances Not Mergers?

Graham Dunn's Consolidation: Painful Progress, Flightglobal, Aug. 19, 2009 (available here), offers a critical account of the outmoded regulatory scheme international air carriers are forced to operate under and the limits placed on true consolidation in the market.  The story also highlights the importance of alliances in a tough operating environment and suggests that they remain more enticing for the industry than true consolidation.  Indeed, as the story points out, alliances allow carriers to cut back their capacity without abandoning markets wholesale. 

August 27, 2009 | Permalink | Comments (0) | TrackBack (0)

The New Airline Competition

There's a new story out about the changing face international airline competition which is well-worth reading.  See Richard Newman, Airline Competition Has Become an International Team Game, Star-Ledger, Aug. 26, 2009 (available here).  Those interested in a synoptic view of the present alliance system should make a point to read it.

August 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 26, 2009

More on Kennedy and Airline Deregulation

The Wall Street Journal's Middle Seat Terminal blog has a nice summary of the late Sen. Edward Kennedy's contribution to airline deregulation and the U.S. air transport industry as a whole.  See Scott McCarthy, Kennedy Pushed Airline Deregulation, Changed U.S. Air Travel, Middle Seat Terminal Blog (Aug. 26, 2009) (available here).  From the blog post:

Deregulating the airline industry was a major legislative achievement for Sen. Edward M. Kennedy, who pushed the issue even though he didn’t have jurisdiction over aviation and used his substantial charm and persuasiveness to change the way America travels.

In the early 1970s, Sen. Kennedy held extensive hearings as chairman of the Subcommittee on Administrative Practice and Procedure, pushing deregulation as a way to increase competition and bring affordable air travel to millions of Americans. At the time, the Civil Aeronautics Board, a government agency, set airline fares and routes, limiting competition and guaranteeing airlines’ profits. The hearings drew media attention and raised the profile of what had been a largely academic issue to major pro-consumer status.

August 26, 2009 | Permalink | Comments (1) | TrackBack (0)

Kennedy and Airline Deregulation

With the news of Sen. Edward Kennedy's passing, it seems appropriate for the Aviation Law Blog to make mention of his considerable contribution to U.S. airline deregulation.  As head of the Subcommittee on Administrative Practice and Procedure of the Senate Committee on the Judiciary, he held widely publicized hearings in 1976 to consider arguments on airline deregulation.  See Report of the Subcomm. on Administrative Practices and Procedure of the Senate Committee on the Judiciary, 94th Cong., 1st Sess. (1975).  The so-called "Kennedy Report" concluded:

The airline industry is potentially highly competitive, but the Civil Aeronautic Board's system of regulation discourages the airlines from competing in price and virtually forecloses new firms from entering the industry.  The result is high fares and security for existing firms.  But the result does not mean high profits.  Instead the airlines--prevented from competing in price--simply channeled their competitive energies toward costlier service: more flights, more planes, more frills. . . .  The remedy is for the [CAB] to allow both new and existing firms greater freedom to lower fares and . . . to obtain new routes.

Id. at 3.

A summary of the report can be found in the archives of the Journal of Air Law and CommerceSee Edward M. Kennedy, Airline Regulation by the Civil Aeronautics Board, 41 J. Air L. & Com. 607 (1975).

August 26, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 25, 2009

United Fined $75k for Advertising Violation

As mentioned previously on the blog, see "DOT Pro-Consumer Crackdown," the Department of Transportation has been vigorous as of late in enforcing its consumer protection regulations.  The latest target of the DOT's efforts is United Airlines:

This consent order concerns Internet advertisements by United Air Lines, Inc. that violate the full fare advertisement requirements specified in 14 CPR Part 399 and are considered to violate 49 U.S.C. § 41712, which prohibits unfair and deceptive practices. This order directs United to cease and desist from future violations, and assesses the carrier a compromise civil penalty of $75,000.

. . .

For a period of time, United advertised a number of fares on the "Special Deals" section of its website that did not contain appropriate notice of the amount or nature of additional taxes and fees that were excluded from the advertised fare at the first point in which the fares were displayed. Nor did United provide clear and conspicuous notice that the fares advertised required a roundtrip purchase. Instead, these fares were followed by a double asterisk that referred the reader to fine print below the group of advertised fares that stated "Each way fares based on required roundtrip purchase, plus taxes/fees." By failing to provide appropriate notice of the taxes and fees applicable to these fares and the roundtrip purchase requirement associated with the fares, United violated 14 CFR Part 399.84 and engaged in an unfair or deceptive practice and unfair method of competition.

See United Airlines, Inc., Violations of 49 U.S.C 41712 and 13 CFR 299.84, Dkt. No. OST-2009-0001, Consent Order (Aug. 25, 2009), at 1 & 2.

 

August 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Airlines Need Money to Operate

While anyone who has operated a Fortune 500 company or a lemonade stand can well attest to the need for their endeavors to take in more money than they spend in order to survive and thrive, apparently this trivial fact of business life is lost on some journalists.  Ellen Creager's Airlines Becoming a Free-For-All, Chi. Tribune, Aug. 25, 2009 (available here), is a good case in point.  According to Creager, "Like an unkind project in social engineering, fees are being especially jacked up for unaccompanied children, pets and sporting equipment -- all hassles for the airlines -- to create a major disincentive to fly."  Really?  Could it not be that the airlines are attempting to offset the costs associated with special accommodations and recover enough revenue to keep their operations afloat in tough economic times? 

Creager goes on to provide a list of "egregious" airline fees for everything from pets to surfboards, failing to note next to each example why an airline might charge a premium to handle and store them.  No one is forced to fly with their guitar or their bike.  In fact, no one is forced to fly at all.  It's a service consumers choose to use--and one which they have to pay for if they want it made available.  With a worldwide economic depression and volatile operating costs pummeling the airlines, consumers have to realize that the "good old days" are, if not gone forever, at least on hold for the indefinite future.  Instead of putting in perspective what the airlines realistically need to do to stay in business, Creager takes the easy route of simply ridiculing them for trying.  Such righteous indignation may draw some reader's eyes to the page, but it does nothing to inform them of the tough operating environment the airlines are in.

August 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, August 24, 2009

Alaska Airlines Turns Up the Heat on Virgin America

In its dogged pursuit of grounding a rival carrier, Alaska Airlines has refiled its petition before the Department of Transportation for a full inquiry into Virgin America's citizenship profile.  See Renewed Motion of Alaska Airlines, Inc. for a Public Proceeding, Dkt. No. OST-2009-0037 (Aug. 21, 2009).  From the filing:

Almost six months have passed since Cyrus Capital Partners L.P. and Black Canyon Capital LLC, the two U.S. hedge funds holding 75 percent of Virgin America’s voting stock, exercised puts that surrendered back to the British Virgin Group all of the economic rights traditionally associated with being a shareholder. Alaska Airlines is of the view that Virgin America has lost its status as a U.S. carrier and has therefore been operating illegally ever since these rights were exercised. It also appears, based on the limited publicly available information and the absence of any statement to the contrary, that the Department now considers voting rights stripped of any economic interests to satisfy U.S. citizenship requirements or has provided Virgin America a “grace period” in which to find replacement U.S. investors. Either scenario raises difficult statutory and policy issues. Alaska therefore renews its request for a public review of Virgin America’s current and prospective citizenship status.

Id. at 2-3.

A brief summary of the "story so far" can be found in Kathy Swiff's Alaska Air Wants DOT to Open Virgin America Review, Dow Jones Newswire, Aug. 21, 2009 (available here).

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, August 23, 2009

New Airline Consumer Group

The Washington Post has a brief story on the so-called "Consumer Travel Alliance," a reportedly "new nonprofit, nonpartisan organization [which has] install[ed] itself on the Hill, within earshot of the congressmen who shape the laws that affect every aspect of travel."  See Andrea Sachs, Coming and Going, Wash. Post, Aug. 23, 2009 (available here). 

According to the group's website, it's taking aim at everything from passenger rights to antitrust immunity for airline alliances.  In other words, it appears to support the current crusade to enforce more regulatory restrictions on the airline industry which will likely result in fewer flights and higher fares. 

August 23, 2009 | Permalink | Comments (0) | TrackBack (0)