Thursday, October 22, 2009
Hubert Horan, an independant aviation analyst with 25 years of experience and a previous guest writer for this blog, has submitted a rebuttal to the oneworld Alliance's recent filing against Justice Department concerns over extending antitrust immunity to global airline alliances. Horan's summary of his criticisms are bellow, followed by a link to his full filing.
The BA/AA Statement directly acknowledged the evidentiary problems highlighted by the DOJs attack on the DOTs Star Alliance/Continental approval. On the one hand BA/AA are asking for the exact same treatment as earlier ATI cases, yet they recognize that those cases were approved despite the complete absence of any legitimate, objective evidence of public benefits and minimal competitive risks. Thus the need for their Statement (OST 2008-0252-3357), because (unlike Skyteam and Star), BA/AA knew they couldnt count on DOT approval without having some sort of evidence on the case record.
However, their Statement was some of the most embarrassingly awful analysis Ive seen in my quarter-century in this business. The central arguments--that there is no statistically significant fare effect from reducing the actual number of carriers on a route from two to one and that granting antitrust immunity has no significant effect on fares are based on an incredibly simplistic regression where all of the input data is wrong. The Statement claims that ATI grants will never affect consumer pricesnot just in this narrow case, under current conditions, but anywhere, anytime, regardless of market conditions. The claims that ATI grants will never affect consumer prices is wholly based on their regression which attributes all observed price variations to variables reflecting the number of competitors. But the input data was garbage, because it treated all immunized partners (Northwest and KLM on Detroit-Amsterdam) and independent price competitors, just like BA and Continental on Houston-London. Thus none of the explanatory variables were accurate (for example, the competitors=2 variable was a random mix of markets with 1 and 2 actual competitors). Thus the regression output and the conclusions quoted above are also garbage.
The Statement separately notes a variety of competitive disadvantages that BA/AA might face absent full freedom to Collude, but while these may not be favorable to BA/AA shareholders, there is zero evidence that immunity would lead to net public benefits across the market, which is the relevant antitrust standard. Immunity may make it easier for BA/AA to harmonize frequent flyer mileage accrual rules, but that doesnt mean immunity will give BA/AA customers a more lucrative frequent flyer program. Anyone who participates in these programs knows that the claim that reduced competition leads to more generous programs is ridiculous. The Statement argues that the DOT should ignore the risks of reduced competition because there in the past immunized partners sometimes increased capacity on hub-to-hub routes, but presented no evidence that the current application would lead to overall capacity increases (and the past increases were all one-time events that occurred a decade ago under very different market conditions). Industry consolidation (especially the radical consolidation occurring on the North Atlantic) poses risks to consumers if airlines can more readily restrict supply without fear of meaningful market discipline, and the Statement asks us to ignore these risks on the basis of a totally incompetent regression. In my experience, testimony like this is usually a mix of valid, marginal and challengeable points. I couldnt find a single legitimate claim in the BA/AA Statement that had any relevance to the case at hand.
My statement attacking the BA/AA is also on the case record at OST-2008-0252-3362 (available here). Blog readers may wish to compare the two Statements and draw their own conclusions. One cannot begin to deal with the larger issues raised by the specific BA/AA application or North Atlantic consolidation more generally without first addressing the DOJs basic evidentiary problems. It is unacceptable to make major antitrust decisions based on wholly unsubstantiated assertions, or evidence totally unrelated to the case at hand, or on the basis of analysis as atrociously awful as what you'll find in the BA/AA Statement.
Wednesday, October 21, 2009
The Fall issue of Volume 9 of Issues in Aviation Law and Policy (IALP) is currently in production. For blog readers unfamiliar with the journal's history, IALP was formerly published by CCH/Wolters Kluwer since April 2001 in looseleaf format. Starting with Volume 8, the journal was placed under the auspices of the International Aviation Law Institute and is now produced in a more portable and readable perfect-bound format. What has not changed is the core concept which animated the launch of IALP eight years ago: to present articles and commentaries by leading policymakers, officials, analysts, academics, and industry leaders who have the experience and expertise to brief readers on the challenges confronting global civil aviation today and in the future.
Those interested in subscribing to IALP are encouraged to contact Stephen Rudolph, the Institute's Executive Director, at 312-362-5769 or by e-mail. A comprehensive two-volume archive of the first seven volumes of IALP is also available. Further information on the journal, including a complete list of past articles, is available on the Institute's website here.
Articles from the forthcoming issue include:
Robert van der Vliet, Europe's Take on Interlining--II: (Member) State Sovereignty and the 'Non Imperial Empire'
P. Paul Fitzgerald, Air Passenger Rights: The First Canadian Efforts...an Inauspicious Beginning
Gabriel S. Sanchez, Toward Comprehensive Slot Reform in the EU
Mervyn E. Bennun, The Tuninter 72 Prosecution and Attachment E to Annex 13 of the Chicago Convention
Gregory O. Principato & Monica Hargrove Kempt, Recent Developments in Airport Security Searches: Is Excessive Cash a Security Threat?
Hanna Chouest, Dualism, Science and the Law: The Treatment of the Mind-Body Dichotomy Under Article 17 of the Montreal Convention
Moses George, Public Monopoly to Private Monopoly--Case Study of Greenfield Airport Privatization--Part I
Prof. Brian Havel was featured in today's edition of the Chicago Tribune. In it, he commented on the likelihood of a U.S./Japan open skies treaty given the Japanese Government's current interest in saving the foundering Japanese Airlines. See Julie Johnson, United's New Ally May Help It Counter Losses, Chi. Tribune, Oct. 21, 2009 (available here).
Monday, October 19, 2009
In its latest press release, the Association of European Airlines expressed "its disappointment that the [European] Commission had failed to bring the state of the industry to the table at the 9th October Council of Transport Ministers, thereby stifiling debate on the winter slots waiver." See Press Release, AEA, Turbulent Skies: 35,000 Job Cuts, Record Losses Overshadow AEA Assembly, at 2 (Oct. 16, 2009) (available here). The Commission had managed to pass a six-month suspension of the "use-or-lose" slot rule which requires a carrier to use a slot at least 80% of the time during a given season in order to retain it for the following season. See Council Regulation 95/93, art. 10, 1993 O.J. (L 14) 1; see also Council Regulation 545/2009, 2009 O.J. (L 167) 24 (suspending the use-or-lose rule for the summer 2009 season). However, it appears they have no interest in pushing the matter further.
This shouldn't surprise anyone, including the AEA. In the recitals of the slot rule suspension regulation, the European Parliament stated that any future proposal to suspend or modify the use-or-lose rule "should be made only if it forms part of a proposal for a general revision of" the Community's slot rules. See Regulation 545/2009, supra, recital (3). Apparently the Commission is not in a position to offer a comprehensive revision to the EC's slot rules at this time. That is unfortunate. Having been in place for over 15 years and routinely subjected to criticism from industry stakeholders, the slot rules are in need of an overhaul.
Sunday, October 18, 2009
Lori Brown of Western Michigan University's College of Aviation has an interesting paper up online. See Post 9-11 Flight Attendant/Pilot Communication and Security Training Requirements; Are They Adequate to Reflect Our Current Age of Terrorism? (Oct. 4, 2009) (available from SSRN here). From the abstract:
The events of September 11th, 2001, have magnified the importance of flight attendants protecting safety of passengers and crew, as well as, providing critical information to the pilots. The events of September 11 changed forever our concepts of aviation safety. The use of a hijacked aircraft as a weapon requires a new strategy to ensure that the crew always retains control of the aircraft. Flight Attendants have an immediate need for updated security training. This training should include basic defense maneuvers to allow them to defend themselves and slow down any terrorist attack. Crew communication and coordination should be integrated in this training. Currently, there is no comprehensive training that explains what the flight attendants, pilots and air marshals do in case of an attack. These groups should be trained to work together as a team, to be as effective as possible. This information was made evident in the testimony of Patricia Friend, International Presidents, Association of Flight Attendants, CWA, AFL-CIO, before the subcommittee on transportation security and infrastructure protection of the homeland security committee, U.S. House of representatives, November 1, 2007.
Last Thursday, the U.S. House of Representatives passed a new air safety bill aimed at bolstering training standards for airline pilots. See Press Release, U.S. House Transp. & Infrastructure Committee, House Approves New Air Safety Bill (Oct. 15, 2009) (available here). From the press release:
“This legislation was developed as a result of the crash of Colgan Air Flight 3407, where 50 people tragically perished outside of Buffalo, New York on February 12, 2009, and subsequent hearings by the Aviation Subcommittee. The accident serves as a reminder that we must maintain constant vigilance over airline safety,” said Rep. James L. Oberstar (Minn.), Chairman of the Committee on Transportation and Infrastructure.
“This bill ensures that pilots flying for regional and mainline air carriers are trained to the highest standards, and requires all airline pilots, including first officers, to hold an Airline Transport Pilot certificate, which requires pilots to have a minimum of 1,500 flight hours. Currently, a first officer on a commercial passenger flight only needs a Commercial Pilot certificate, which requires 250 flight hours, or as few as 190 in some cases. The ATP certificate also requires additional aeronautical knowledge, crew resource management training and greater flight proficiency testing,” Oberstar said.
A compact commentary on the bill is available here.