Friday, January 29, 2010

oneworld, Slots, and Approval

The Wall Street Journal is reporting that the oneworld Alliance is in discussions with the European Commission's Competition Authority about a possible surrender, lease, or sale of slots at London Heathrow in order to secure approval for the joint venture under the EC Treaty.  See Kaveri Niththyananthan & Daniel Michaels, Oneworld Airline Partners Discuss Concessions with EU, Wall St. J., Jan. 29, 2010 (available here). 

The story mischaracterizes the EC regulatory process, however, by stating that the slot concessions would be made in exchange for antitrust immunity.  The Commission has no such authority.  Instead, it has the power to determine whether or not an alliance is in conformity with Article 81(1) of the EC Treaty which prohibits, as incompatible with the common market, all intercorporate agreements, decisions by associations of corporations, and concerted practices that "may affect trade between [EU] Member States" and have "as their object or effect the prevention, restriction or distortion of competition within the common market."  Article 81(2) declares all practices prohibited under Article 81(1) "automatically void," while Article 81(3) holds out an exemption (which will render Article 81(1) "inapplicable") for agreements or practices that, in general, advanced consumer welfare by improving the production and distribution of goods or promote technical or economic process.  An exempted agreement, such as one governing an airline alliance, must not--in U.S. antitrust terms--impose unreasonable ancillary restrictions or enhance market power in respect of a substantial part of the products in question.

As the story notes, the Commission has already sent oneworld a statement of objections concerning the alliance's potential to harm competition in the transatlantic market.  It is incumbent on oneworld now to assuage the Commission's fears, much in the way SkyTeam did in 2007 when its carriers opted to surrender slots and enter into interlining agreements with non-alliance members.  See Antitrust: Commission Market Tests Commitments from Eight Members of SkyTeam Concerning Their Alliance Cooperation, IP/07/1558 (Oct. 19, 2007) (available here).  While the oneworld Alliance has maintained that slot surrender is unnecessary for it to win antitrust immunity from the Department of Transportation, see Joint Applicants' Answer to the Department of Justice's Motion for Leave and Comments, at 8, Dkt. No. DOT-OST-0252 (Jan. 11, 2010) (available here), it may have a harder time selling this argument to the Commission given the precedent set by SkyTeam.  On the other hand, if oneworld does surrender slots to appease the Commission, it may have the effect of simultaneously satisfying opponents of the alliance's U.S. immunity bid (most notably the Justice Department) that the venture won't close off access to Europe's busiest airport.  Cf. Joint Application of American Airlines, Inc. et al., Comments of the Department of Justice, Dkt. No. OST-2008-0252 (Dec. 21, 2009) (available here).

January 29, 2010 | Permalink | Comments (0) | TrackBack (0)

DOT to Allocate Scarce Haneda Slots

The Department of Transportation has initiated slot allocation proceedings for Japan's congested Haneda Airport in Tokyo.  See 2010 U.S.-Haneda Combination Services Allocation Proceeding, Order Instituting Proceeding and Inviting Applications, Dkt. No. OST-2010-0018 (Jan. 26, 2010).  From the order:

On December 11, 2009, the United States and Japan initialed the text of a Memoranda of Understanding that following signature will, among other things, make available to US air carriers four daily pairs of slots for scheduled combination services at Tokyo’s Haneda International Airport, when Haneda’s fourth runway becomes operational. Under the terms of the 2009 MOU, scheduled operations between the United States and Haneda will be subject to the following conditions: (1) US operations at Haneda will be permitted between 2200 and 0700 hours local time; (2) departures from Haneda to a point in the 48 contiguous US states are not permitted prior to midnight; and (3) extra sections are not permitted.

Id. at 1.

Though the MOU is being touted as the equivalent to an open skies agreement, the proceeding evidences the tight controls which remain on Tokyo airport access--controls which frustrate the open gateways feature of the open skies template.  Cf. In the Matter of Defining Open Skies, 3 Av. L. Rep. (CCH) ¶ 26,960, at 23,901 (Aug. 5, 1991).  The Japanese Government could improve the slot allocation process by instituting open and transparent market mechanisms such as secondary slot trading and auctions.  Both avenues would help ensure that scarce slots were placed into the hands of airlines which valued them the most.  As it stands, the U.S./Japan MOU's slot allocation provision retains an illiberal managed trade approach to airline market access.

January 29, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 27, 2010

Ryanair Wins Another

The European Commission announced today that it has closed its investigation into Irish low-cost carrier Ryanair's agreement with Slovakia's Bratislava Airport.  See Press Release, Europa, Commission Closes Investigation into Agreement Between Bratislava Airport and Ryanair, IP/10/56 (Jan. 27, 2010) (available here).  From the press release:

The operator of Bratislava Airport (Letisko M.R. Štefánika – Airport Bratislava, a.s.) concluded on 5 December 2005 an agreement with Ryanair until 2016. Following an in-depth assessment after opening the formal investigation procedure, the Commission has now determined that the agreement can be justified by a cost-benefit-analysis. This cost-benefit-analysis provided an assessment of the conditions – in particular the coverage of the costs by the aviation revenue attributable to the agreement - at Bratislava Airport and allows to conclude that in similar circumstances a private investor operating under normal market conditions would have entered into the same or similar commercial arrangement as the airport operator.

In addition the diversification of airlines operating from the airport - and thus the risk reduction – as well as a better allocation of resources and a reduction of overcapacities contributed positively to the operational and financial situation of Bratislava Airport and increased its market value for its shareholders.

Therefore, the Commission concluded that at the time when the Ryanair agreement was signed, it was rational to consider that it would make the management of the airport more profitable.

Despite the victory, Ryanair still remains subject to seven separate Commission investigations concerning its business arrangements with airports across the European Union.  Even so, Ryanair has avoided Commission sanctions before.  In December 2008, the European Court of First Instance struck down a 2004 Commission decision which found that the Irish airline had received illegal State aid from Brussels South Charleroi AirportSee Case T-196/04, Ryanair Ltd v. Comm'n (2009); see also an earlier blog post on the decision here.  Though the CFI's decision was based on the Commission's misapplication of EC competition law rather than a clear legal vindication of Ryanair's controversial strategy of exchanging service to regional airports for so-called "start-up aid," it has allowed the low-cost carrier to maintain its preferred business model.  

January 27, 2010 | Permalink | Comments (1) | TrackBack (0)

Tuesday, January 26, 2010

EU Will Have to Wait for Boeing Ruling

The European Union has expressed dismay that it will have to wait until June for the World Trade Organization to issue its ruling on subsidies allegedly granted to U.S. aircraft manufacturer Boeing.  See EU Complains of Late Date in WTO Ruling on Boeing, Assoc. Press, Jan. 25, 2010.  According to the story, the EU is concerned that the 10-month gap between the Boeing ruling and last September's WTO decision on the illegality of subsidies conferred to Airbus will "prove unhelpful if the EU and U.S. arrive at a point where they wish to sit down and negotiate a solution."

For further discussion of the trade dispute, see earlier blog entries here, here, and here.

January 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Low Cost Carrier Model in India

A new working paper which may interest blog readers is Manisha Gupta's Low Cost Carrier Model in India (Working Paper, Jan. 19, 2010) (available from SSRN here).  From the abstract:

Difficult market conditions since 2008, including oil price volatibility, slump in air travel demand, and economic downturn have had a spiraling effect on the airline industry, leading to a record number of airline insolvencies across the globe. Despite the situation, the low cost carrier model has proven to be a fairly popular business model internationally, owing to the cheap air fares. However, the model is yet to acquire a competitive pricing position in the domestic Indian market. Limited infrastructure and lack of favorable regulatory policies are among the primary reasons for low market penetration. This paper reviews existing aviation industry literature to reason the policy challenges, including the policy of fee waiver cap on aircrafts with less than 80 seats/or weighing less than 21 tones. The paper concludes that the environmental cost of local air pollution around the airport is a function of an aircraft’s seating configuration and the maximum seating capacity demand on the given air route instead of the size of the aircrafts.

January 26, 2010 | Permalink | Comments (1) | TrackBack (0)

Friday, January 22, 2010

Virgin Atlantic's Final Shot

Despite the Department of Transportation's claims that it will no longer accept new filings to the oneworld Alliance antitrust immunity docket, Virgin Atlantic Airways--one of the alliance's most steadfast opponents--filed comments earlier this week requesting that the Department deny oneworld's immunization request.  See Motion for Leave to File and Reply of Virgin Atlantic Airways, Dkt. No. OST-2008-0252 (Jan. 20, 2010) (available here).  While Virgin's filing reiterates the carrier's standing charge that the alliance, if immunized, will severely harm competition, it also draws in oneworld's recent attempt to keep JAL in its alliance:

What is most notable about [the oneworld antitrust immunity case] is the stark dichotomy between what the Joint Applicants are saying on the record in this docket versus what they are saying in the press and in the marketplace. For example, [British Airways] and [American Airlines] in this case claim that no remedies are required in order to preserve competition, yet in anticipation of an alliance between JAL and Delta (an alliance that which would involve lower levels of market concentration than would the BA/AA combine), American Airlines' CFO Tom Horton stated last month that slot give-ups and route carve-out are insufficient remedies for an anti-competitive alliance. In fact, Virgin Atlantic notes a recent statement made outside of this docket by the CEO of American Airlines. Comparing the prospects of antitrust approval for JAL-AA versus a potential JAL-Delta tie-up, Mr. Arpey stated: "[T]he JAL-American Airlines team, which does not have overlapping flights, will readily receive antitrust immunity. However, there would be 'zero possibility' of a JAL-Delta team receiving approval, as the two carriers have more than a combined 60 percent share in US-Japan flights." If American believes that the levels of market concentration on the Delta/JAL alliance are unacceptably high, then the Department surely must reject the linkup between American and BA, which involves even higher levels of market concentration and more route overlaps than those presented by the Delta/JAL case.

Id. at 8-9.

The oneworld Alliance's response to Virgin's filing is as brief as it is dismissive:

On January 20, 2010, Virgin Atlantic moved for leave to file an unauthorized response to the Joint Applicants’ Answer to the Department of Justice’s Comments. This is yet another in a string of unauthorized pleadings Virgin has filed containing no new information. Accordingly, the Joint Applicants will not be providing a substantive response.  We urge the Department to promptly issue a Show Cause Order in this docket.

See Letter of Carl B. Nelson, Jr. et al. to Dorothy Beard, Chief of Documentary Services, U.S. DOT, Unauthorized Response of Virgin Atlantic Airways (DOT-OST-2008-0252) (Jan. 21, 2010) (available here).

January 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Alliance Review

As discussed previously on the blog, see "Finding Approval," the new transpacific tie-ups will have to not only clear the U.S. antitrust immunity regulatory process, but also receive authorization from Japan.  It remains unclear, however, whether this approval will come from the Japanese Fair Trade Commission or another regulatory organ of the Japanese Government.  Unlike the U.S., Japan does not have statutory standards and procedures in place for immunizing alliances from its competition code.  Even so, it's possible that Japan could give tacit approval these link-ups, opting to not enforce any competition rules at all. 

If the JFTC becomes involved in the process, it's likely that it will adopt the consultative process it did with the 2001 merger of JAL and JAS.  See Koki Arai, An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control, 4 J. Indus. Comp. & Trade 207 (2004).  In that case, the JFTC allowed the airlines to provide a series of commitments aimed at offsetting the competition concerns raised in the JFTC's initial analysis of the merger.  This is not dissimilar from the European Commission's approach to airline alliances which, though "broadly positive" in the past, cf. Competition: Commission Confirms Sending Statement of Objections to Members of SkyTeam Global Alliance, MEMO/96/243 (June 19, 2006) (available here), exhibits a mixture of caution and cooperation.  Cf. Antitrust: Commission Opens Formal Proceedings Against Certain Members of Star and oneworld Airline Alliances, MEMO/09/168 (Apr. 20, 2009).  For example, following its statement of objections to SkyTeam, the Commission was willing to accept the alliance's own proposals to assuage fears that the joint venture would harm compeition.  Commitments made by SkyTeam included making slots available at key EU airports to new entrants; allowing new entrants to share in the alliance's frequent flyer programs; entering into interlining agreements with new entrants; and facilitating intermodal services.  See Antitrust: Commission Market Tests Commitments from Eight Members of SkyTeam Concerning Their Alliance Cooperation, IP/07/1558 (Oct. 19, 2007) (availabale here).  SkyTeam also promised to establish a trustee to monitor the implementation of their commitments.

This approach is rather distinct from what takes place in the U.S. context.  Rather than be subject to direct review from the Department of Justice's Antitrust Division, airline alliances seek refuge under the DOT's broad authority to immunize them from federal competition law.  The 1979 International Air Transportation Competition Act allows for crossborder intercarrier agreements such as alliances to be filed before the DOT for approval and antitrust immunity.  See 49 U.S.C. §§ 41308-09.  Under the statute, the DOT shall approve such agreements so long as they are "not adverse to the public interest."  § 41309(b).  Applying the standard Clayton Act test, however, the DOT "shall disapprove . . . an agreement . . . that substantially reduces or eliminates competition," § 41309(b)(1), unless "the agreement . . . is necessary to meet a serious transportation need or to achieve important public benefits (including international comity and foreign policy considerations)," § 41309(b)(1)(A).  The DOT must also apply the so-called Bank Merger Act escape clause to find that "the transportation need cannot be met or those benefits cannot be achieved by reasonably available alternatives that are materially less anticompetitive."  § 41309(b)(1)(B).  Only after winning DOT approval can an agreement receive antitrust immunity "to the extent necessary to allow [the applicants] to proceed with the transaction specifically approved . . . and with any transaction necessarily contemplated by the [approval] order" if the DOT "decides it is required by the public interest."  See § 41308(b).  While there are two "public interest" tests bundled in the DOT's alliance approval and immunization jurisprudence, the DOT "has always recognized that the public interest standard [for antitrust immunity] is a much more stringent standard than [the alliance approval] public interest standard."  Joint Application . . . to Amend Order 2007-2-16, Dkt. No. OST-2008-0234, Order 2009-4-5 (Apr. 7, 2009) (internal quotation marks ommitted).

Whatever similarities may exist with respect to the Japanese and EU competition regimes cannot be easily extended to what takes place before the DOT.  On its face, the DOT is not a competition authority; it is a regulatory agency which happens to hold--in the view of some critics--the shockingly broad authority to dispense antitrust immunity.  While many arguments were made during the heyday of comprehensive common carrier regulation that regulatory agencies such as the Civil Aeronautics Board required antitrust review and immunization powers in order to promote the public interest, they appear--on their face at least--to lose some force in an era of alleged deregulation where market forces, not command planning, are supposed to control the nature of industry.  The DOT's relationship to alliances appears neither adversarial nor consultative, but protective.  It represents, perhaps, an aberration in the contemporary global market where governments are supposed to do little more for their industries than ensure the actors "play by the rules."  At the very least, the application of the DOT's immunization powers to alliances remains a unique, fascinating, and occasionally perplexing facet of aviation law and policy.

January 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 20, 2010

Reconsidering Extraterritoriality

Blog readers should make a point to read David Hambrick's Note, Reconsidering Extraterritoriality: U.S. Labor Law, Transnational Organizing, and the Globalization of the Airline Industry, 47 Colum. J. Transnat'l L. 576 (2009).  From the abstract:

Secondary boycotts, strikes, and picketing are increasingly common in global industries. When conducted domestically by U.S. workers, such activity has historically been enjoined by courts pursuant to the National Labor Relations Act, which governs collective bargaining agreements in most private sector industries. But collective bargaining in the rapidly globalizing airline industry is regulated under a different statute - the Railway Labor Act - which is not clear regarding the legality of secondary activity. Congress has repeatedly refused to amend the Railway Labor Act to clarify its scope, even as solidarity among the world's airline workers reaches an all-time high. Consequently, the legality of transnational secondary activity under the Railway Labor Act is uncertain. While courts have generally presumed that U.S. labor laws do not apply extraterritorially, they sometimes reach the opposite conclusion in situations where activity takes place partially in the United States or where U.S. interests are at stake. In determining whether the Railway Labor Act regulates transnational labor organizing, courts ought to apply a balancing approach that takes U.S. interests as well as foreign interests and laws into account.

The article won the Dorsey & Whitney Student Writing Prize in Comparative and International Law for Best Note.

January 20, 2010 | Permalink | Comments (0) | TrackBack (0)

AA/JAL News

Despite JAL's bankruptcy and rumors that it plans to switch over to the SkyTeam alliance, American Airlines remains surprisingly upbeat, stating that neither factor--at least for the time being--will hinder the oneworld Alliance.  See American Airlines, Inc., other oneworld Partners: Japan Airlines Bankruptcy No Threat to Alliance, Dallas Bus. J., Jan. 19, 2010 (available here). 

As a new story points out, the real issue for both SkyTeam and oneworld when it comes to JAL is not so much the carrier's survival as it is access to the Japanese airline's routes and premium passengers.  See Harry R. Weber, Asia, not JAL, is the Prize as Delta and American Fight for Bankrupt Rival, Assoc. Press, Jan. 20, 2010.  From the story:

The winner gets a bigger revenue stream, more power to help shape overseas customer options and ticket prices and the potential to one day fly its own aircraft and passengers on JAL's routes.

 . . .

Growth in Asia won't cure everything that ails the major U.S. airlines but it would provide a much-needed boost. Airlines can get higher fares for seats to Asia because international business travelers tend to spend more than leisure fliers. Business travelers fly more and often at the last minute, which means paying higher walk-up fares.

January 20, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, January 18, 2010

Havel on JAL/SkyTeam

Professor Brian Havel, Director of the International Aviation Law Institute, offered his thoughts to the Financial Times on the recent rumors that Japan's beleaguered carrier, JAL, is planning to abandon its codeshare relationship with American Airlines and defect to the SkyTeam alliance.  See Pilita Clark, JAL Woes Set to Reshape Alliances, Fin. Times, Jan. 18, 2010 (available here).  From the story:

“It is a major compromise of American Airlines’ operations, there is no question,” says Professor Brian Havel, director of the International Aviation Law Institute at DePaul University in Chicago. “There is a real risk that the Oneworld network could fall apart.”

Professor Havel adds that one positive aspect of JAL’s financial woes is that it appeared to finally prompt the Japanese government to conclude a so-called “open skies” agreement with the US late last year. Such pacts are aimed at easing restrictions on flights between the countries signing them, but can potentially pave the way for much deeper alliances between each side’s major airlines.

In Japan, Prof Havel said JAL’s rivals at ANA had been lobbying for such liberalisation for many years but nothing had happend until JAL headed for bankruptcy. “Now the Japanese government has reoriented its entire policy by signing Open Skies,” he said.

January 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, January 15, 2010

A Second Stage Deal in 2010?

According to a new story out today, the United States and European Union are hoping to finalize a second stage air transport agreement in the first half of 2010.  See Jay Boehmer, U.S., EU Seeking to Step Up Open Skies Talks, Bus. Traveller News, Jan. 14, 2010.  From the story:

The United States and European Union are accelerating second-stage Open Skies negotiations in the hopes of finalizing an agreement in the first half of the year, though a number of key issues including foreign ownership remains in dispute, the chief U.S. negotiator told BTN last month.

. . .

"We're hastening the pace of negotiations," Byerly said. "We've declared, including President Obama and his EU counterparts at the most recent EU-U.S. summit, the wish and hope that we will complete the second-stage negotiations and have an agreement in 2010."

Byerly said the two sides have made progress on a number of issues, including safety, air traffic control, security and the environment, but sticking points remain, including the issue of foreign ownership. The first-stage agreement, enacted in 2008, maintained limits on foreign control of U.S airlines.

The story goes on to discuss that while the U.S. is open to discussing its 25% ceiling on foreign ownership of its airlines, cabotage remains off the negotiating table. 

January 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 14, 2010

Toward Comprehensive Slot Rule Reform in the EU

Given the recent dispute concerning slots at London Heathrow airport as part of the oneworld Alliance's antitrust immunity application, blog readers may be interested in reading Gabriel S. Sanchez's Toward Comprehensive Slot Rule Reform in the EU, 9 Issues in Aviation L. & Pol'y 89 (2009) (available from SSRN here).  From the abstract:

While the European Union’s liberalized common air transport market is often heralded as a great achievement, its potential remains stymied by the problem of scarce capacity at its airports. In order to mange this scarce capacity, the EU Member States rely upon a slot concept whereby air carriers are apportioned a temporal point of access to a specific airport’s gates and runways for the purposes of either landing or taking off. In order to better manage slot apportionment, a “code of conduct” was promulgated in 1993 which, among other things, set the terms for how Member States were to distribute slots and under what conditions an airline could be forced to forfeit a slot into a pool for redistribution. Under the so-called “use-or-lose” rule, a carrier must use an apportioned slot at least 80 percent of the time during a given commercial season in order to retain it for the following season. Though critics claim this rule has failed to reallocate enough slots to meet the demands of potential new entrants, it remains the only mechanism for slot surrender and redistribution.

This article examines the problem of slot allocation in the EU and the legislative efforts to address the issue. It reviews and criticizes the recent temporary suspension of a critical component of the EC slot rules and looks at how this inapt move could lead to meaningful and efficient slot reform. This article also suggests what that reform ought to look like, while not committing to any series of concrete rules.
 

January 14, 2010 | Permalink | Comments (0) | TrackBack (0)

An Intersection of Air & Space Law

A new article which may be of interest to blog readers is Michael C. Mineiro's An Intersection of Air & Space Law: Licensing and Regulating Suborbital Commercial Human Space Flight Operations, 22 ABA Air & Space Law. (2010) (available from SSRN here).  From the abstract:

Imagine the excitement of traveling to the upper limits of the atmosphere, experiencing weightlessness and the beauty of mother Earth, and returning home to share your stories. Several companies in the United States are developing and actively marketing this experience and it is anticipated that in a few years and for a few hundred thousand dollars you will be able to purchase such a ride. But where man goes, so does law, and as lawyers our natural inclination is to ask how these activities are to be regulated.

This article examines the regulation of suborbital commercial human space flight in the United States, highlighting aspects of the U.S. regulatory regime, particularly the role of the Federal Aviation Administration (FAA). The European Union is now starting to look at developing its own regulations as well and this article illustrates how the EU approach may differ from that of the United States. The practical questions of future demand for legal services and upcoming legal challenges also are addressed.

January 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 13, 2010

BA Sweetens the Deal for JAL

British Airways may not be keen on surrendering slots to its competitors in order to win antitrust immunity from the Department of Transportation for its partnership with American Airlines, see Joint Applicants' Answer to the Department of Justice's Motion for Leave and Comments, at 8, Dkt. No. DOT-OST-0252 (Jan. 11, 2010) (available here), but it is are open to transferring some to JAL to keep the Japanese carrier in the oneworld alliance.  See Kaveri Nithyananthan, British Air Offers JAL Heathrow Slots in Oneworld Deal, Dow Jones Newswire, Jan. 12, 2010.  From the story:

British Airways PLC . . . said Tuesday it would provide Japan Airlines Co. Ltd. coveted slots at London's congested Heathrow airport as part of its offer to keep JAL in the Oneworld alliance.

The U.K. carrier has offered ailing JAL a deal with an incremental value of between $165 million and $240 million over three years to encourage the Tokyo-based airline to stay with the alliance.

A British Air spokesman said the deal includes establishing a joint business for flights between Japan and Europe, which would increase revenue-sharing opportunities and double the number of JAL codeshares on BA's European flights.

"We would aim for the joint business to come into effect from April 2011, subject to regulatory approval," BA's spokesman added.

Finding regulatory approval may be easier said than done for the oneworld Alliance.  It's possible that the alliance is getting ahead of itself, envisioning a transpacific link-up before its transatlantic proposal gets off the ground.  The DOT has yet to rule on its current application which was originally set to end last October and it's unclear what attitude the agency will take toward the U.S./Asia aviation market.  The pending application filed last month by U.S. carriers United Airlines and Continental with Japan's ANA will provide a new test for the DOT's willingness to continue dispensing broad grants of antitrust immunity despite heavy criticism from the Department of Justice's antitrust division.  The oneworld Alliance's best laid plans to keep JAL in its fold may be for naught.

January 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 12, 2010

Horan's Hard Look at the oneworld Application

Hubert Horan--a private aviation consultant and analyst who has provided commentary on airline alliances for this blog here, here, and here--recently issued his own series of criticisms concerning the oneworld Alliance's application for antitrust immunity from the Department of Transportation.  See Hubert Horan, Supplemental Comments, Dkt. No. DOT-OST-2008-0252 (Jan. 8, 2010) (available here). 

Horan's filing covers a number of areas not addressed in the Justice Department's recent series of criticisms.  Specifically, Horan argues that oneworld's claim its alliance will produce $92 million in annual public benefits is deficient; that the consumer welfare benefits created by North Atlantic alliances were fully exhausted by the late 1990s; and that earlier economic studies which claim to demonstrate alliance benefits are either false or misleading.  While Horan's remarks may not find favor with all of the blog's readership, they are an important contribution to the intellectual debate over the future of alliances and their immunization from U.S. antitrust law.

January 12, 2010 | Permalink | Comments (0) | TrackBack (0)

oneworld Replies to the DOJ

Yesterday, the oneworld Alliance issued its reply to last month's filing by the Justice Department which opposed any broad grant of antitrust immunity for the joint venture.  See Joint Applicants' Answer to the Department of Justice's Motion for Leave and Comments, Dkt. No. DOT-OST-0252 (Jan. 11, 2010) (available here).  In brief, the alliance partners reiterated their position that antitrust immunity is necessary for them to compete effectively in the transatlantic aviation market.  From the filing:

The Joint Application will generate significant public benefits, and will not harm competition. On the benefits side, oneworld is currently the smallest branded alliance, and absent meaningful integration it will become increasingly marginalized as a competitive alternative to the larger and stronger Star and SkyTeam alliances. As for potential competitive harm, the overlap routes are some of the most competitive across the Atlantic, and the most likely to attract new entry. DOJ has failed to meet its burden of proof regarding harm, or to rebut the comprehensive evidence of public benefits satisfying the Department’s SkyTeam II and Star II precedents. The proposed alliance should be approved and immunized without further delay. 

See id. at 55.

This is not the first time oneworld has attacked the DOJ's steadfast opposition to antitrust immunity for alliances.  Last September, the alliance filed an advance rebuttal based on the criticisms the Department had levied against the Star Alliance application.  See Joint Applicants' Motion to Leave to File and Supplemental Comments, Dkt. No. OST-2008-0252 (Sept. 8, 2009) (available here).  Despite the Department of Transportation's October 31, 2009 deadline for an end to the oneworld proceedings, the DOJ delayed filing their comments in the case until just four days before Christmas.  See Joint Application of American Airlines, Inc. et al., Comments of the Department of Justice, Dkt. No. OST-2008-0252 (Dec. 21, 2009) (available here).  Though the DOT has officially closed further comments, it's unclear when they will render a final decision in the matter. 

January 12, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, January 11, 2010

Finding Approval

While the oneworld Alliance antitrust immunity application remains in limbo, Star Alliance partners United, Continental, and All Nippon Airways are looking to deepen their relationship with full immunity for the transpacific market.  See Joint Application of All Nippon Airways Co., Ltd., Continental Airlines, Inc., and United Airlines, Inc., Dkt. No. OST-2009-0350 (Dec. 23, 2009).  The carriers are reportedly confident that their application will win approval from the Department of Transportation before the United States and Japan finalize their open skies agreement this October.  See Doug Cameron, Airlines Expect Antitrust Approval From Japan in 4 Months, Dow Jones Newswire, Dec. 24, 2009 (available here).  That may be easier said than done.  The oneworld application, as discussed previously on the blog, was supposed to have been concluded last October.  The DOT has extended the filing deadline to today, but has not given word when it will render a final decision.  Speed, one might say, is not of the DOT's essence.

Meanwhile, as Star's application sits before the DOT, the airlines are facing an uncertain regulatory climate in Japan.  Unlike the U.S., Japan does not have statutory standards and procedures in place for immunizing alliances from its competition code.  See id.  In 2002, the Japanese Fair Trade Commission approved the merger of Japanese Airlines and Japanese Air System only after the two airlines agreed to freeze or reduce fares on certain routes and surrender slots at Haneda Airport.  See Koki Arai, An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control, 4 J. Indus. Comp. & Trade 207 (2004). It will be interesting to see if similar conditions are imposed on the Star Alliance or if Japanese regulators will construct an analytical/remedial framework for alliances that is distinct from their merger review.

January 11, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, January 8, 2010

Virgin is American, So Says DOT

After months of unedifying back-and-forths between Alaska Airlines and Virgin America concerning the latter's ownership profile, the U.S. Department of Transportation announced today that Virgin America meets the statutory citizenship requirements to provide domestic air transport service.  See Press Release, U.S. DOT, Virgin America Remains U.S. Citizen, DOT Finds, DOT 3-10 (Jan. 8, 2010) (available here).  From the press release:

The U.S. Department of Transportation (DOT) today announced that after conducting a thorough review it has found that Virgin America remains a U.S. citizen and remains under the actual control of U.S. citizens.  Under U.S. law, only airlines that meet the standards for U.S. citizenship may hold authority to operate as a U.S. airline.

. . .

Following discussions between DOT and the air carrier, Virgin America agreed to make a number of changes to ensure that the air carrier would remain under the ownership and actual control of U.S. citizens.  These changes include, among other things, provisions to ensure that new investments of capital from entities other than the Virgin Group – a collection of the United Kingdom companies and/or citizens that own 25 percent of the air carrier’s stock – can and will be obtained.  Virgin America also will add an additional U.S. citizen to its board, resulting in seven U.S. citizen investor designees as voting members on the nine-member board.

Earlier blog discussions of the Virgin America citizenship proceeding can be found here, here, here, and here.  The decision dismissing the proceedings are available in Order 2010-1-5, Dkt. No. DOT-OST-2005-23307 (Jan. 8, 2010) (available here).

January 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Here Come the Body Scanners

As part of the Obama Administration's plan to beef-up air transport security, the President announced yesterday that the U.S. is urging foreign governments to deploy full body-scanners.  See Spencer S. Hsu, U.S. to Push Foreign Governments to Use Full Body-Scanners at Airports, Wash. Post, Jan. 8, 2010 (available here).  This move may not sit well in Europe, which is in the midst of its own debate over the use of scanning technology:

But even as the European Union’s aviation security experts met to discuss scanners, Belgium’s secretary of state for transportation, Etiennne Schouppe, described the enhanced measures as excessive, saying security requirements at European airports were already strict enough.

Spain, too, has expressed skepticism on the scanners, and the German and French governments remain uncommitted.

A German Interior Ministry spokesman, Stefan Paris, said the bloc’s rules on flight safety needed to be changed before scanners could be used. Germany’s position, he said, is that the scanners cannot be deployed until it has been shown that they will improve security, that they are not a health hazard and that they will not be so invasive that they harm individuals’ rights.

Some countries in the European Union have expressed concern that full-body scanners will be dangerous because of the radiation they emit.

See Europe Debates Use of Full-Body Scanners at Airports, Assoc. Press, Jan. 7, 2010 (available here).

Understandably, some conservative religious groups are also concerned that the technology amounts to an incursion on modesty and have asked that measures be put in place to ensure that only men scan men and women scan women.  See Matthew Wagner, European Rabbis Worried Over Body Scans, Jan. 7, 2010 (available here).  And, finally, the always outspoken former American Airlines Chairman and CEO, Bob Crandall, has simply called the body scans a waste of resources.  See Fmr. CEO of American Airlines Calls Full-Body Scanners in Airports a Waste of Resources, FOX News, Jan. 7, 2010 (available here).

January 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 6, 2010

A New Low-Cost Alliance

Two Asia-Pacific low-cost carriers, Qantas's Jetstar and the Malaysian carrier AirAsia, have formed a non-equity alliance "to cooperate on passenger and ground handling in Australia and Asia at airports they both serve, to pool their inventories of aircraft components and spare parts, and to work toward joint procurement of engineering and maintenance supplies and services."  See Bill Lindsay, Qantas, AirAsia Form Alliance, Wall St. J., Jan. 6, 2010 (available here).  The airlines announced that their cooperative venture could be deepened in the future to include aircraft procurement and revenue sharing deals.

There is no indication in the story whether the arrangement will receive scrutiny from national competition authorities.  Last month, the Australian Competition & Consumer Commission authorized a joint venture between Australia's Virgin Blue and U.S.-based Delta Air Lines to cooperate on passenger and cargo services for a five year period.  See ACCC, Determination: Applications for Authorisation Lodged by Virgin Blues Airlines Pty Ltd & Others in Respect of a Joint Venture Between the Applicants, Pub. Reg. No. C2009/1317 (Dec. 10, 2009) (available here).

January 6, 2010 | Permalink | Comments (0) | TrackBack (0)