Thursday, July 15, 2010

Commission Clears oneworld

Yesterday, the European Commission closed its investigation of the oneworld Alliance after accepting its commitments to release 49 weekly slots at London Heathrow and enter limited cooperation agreements with competitors on ticket sales and frequent flyer programs for select U.S./London routes.  See European Commission, Antitrust: British Airways, American Airlines and Iberia Commitments to Ensure Competition . . ., MEMO/10/330 (July 14, 2010) (available here).  The full list of commitments can be found in Commitments to the European Commission, Case COMP/F-1/39.596 (June 25, 2010) (available here).

The Commission's decision in this matter is not surprising.  Over the past decade, the Commission's stance toward alliances involving European carriers has been generally positive.  Where competition concerns are raised, commitments such as those offered by oneworld or by SkyTeam in 2007.  SeePress Release, Antitrust: Commission Market Tests Commitments from Eight Members of SkyTeam Concerning Their Alliance Cooperation, IP/07/1558 (Oct. 19, 2007) (available here).  While this approach may upset "antitrust purists" who would prefer to see the Commission curtail alliance behavior such as coordinating prices and scheduling, it has allowed EU airlines to provide consumers with global route networks and other perquisites without crowding-out new market entrants.

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

New GAO Report on Fees

The U.S. Government Accountability Office has issued a new report on consumers and airline fees, see Commercial Aviation: Consumers Could Benefit From Better Information About Airline-Imposed Fees and Refundability of Government-Imposed Taxes and Fees, GAO-10-785 (July 14, 2010) (available here).  From the summary:

Airlines have imposed a variety of fees on a range of optional services, such as checked and carry-on bags; meals; blankets; early boarding; and seat selection. According to airline officials, the fees are based on a combination of factors, including the cost of providing the service, competition, and consumer demand. The fees have supplemented airline revenues, providing at least $3 billion in 2009--a small but growing amount of total revenues. However, information about the fees is not fully disclosed through all ticket distribution channels used by consumers, making it difficult for them to compare the total cost of flights offered by different carriers. The Department of Transportation (DOT) does not currently require disclosure of airline-imposed optional fees, apart from those for checked bags, but recently issued a Notice of Proposed Rulemaking (NPRM) considering different forms of disclosure of such fees. Meanwhile, a system is being tested to fully disclose all of the fees to consumers searching for fares, but airlines are not likely to disclose them unless compelled to do so. Airlines' increasing reliance on fees reduces the proportion of their total revenue that is taxed to fund FAA. The Internal Revenue Service (IRS) has determined that many of these fees, including checked baggage fees, are not related to the "transportation of a person"--the basis for imposing the 7.5 percent excise tax. According to GAO's calculations, the checked baggage fee (the largest and only measurable untaxed fee) if taxed in fiscal year 2009 would have accounted for about 2 percent of total Trust Fund revenues but is likely to grow in future years given recent trends. Since DOT guidance requires airlines to report separately only revenues from baggage fees and reservation change and cancellation fees, GAO was unable to estimate potential collections from other untaxed fees. Since airlines first imposed checked baggage fees, the number of checked bags per passenger has declined, contributing to a decline in the rate of mishandled bags. Despite the introduction of fees, airlines have not substantially changed their baggage service or compensation methods. Checked baggage fees have also led to greater amounts of carry-on baggage, resulting in greater competition for limited overhead storage space. According to IRS, aviation excise taxes on unused nonrefundable tickets are not refundable, but if an airline refunds the ticket, a proportionate amount of tax may be refunded. In contrast, consumers with unused nonrefundable tickets with expired or lost value are entitled to a full refund of the September 11th Security Fee, but few consumers request a refund because airlines are not required to inform consumers of this. According to the Department of Homeland Security (DHS), applicable statutes and regulations authorize the refund of its customs and immigration inspection fees if services aren't rendered, but DHS has not issued any policy or guidance that makes this clear. The Department of Agriculture's (USDA) statutes and regulations are unclear as to whether its fee is refundableon unused nonrefundable tickets. If Congress wants to tax currently untaxed airline fees, it would need to amend the Internal Revenue Code. GAO recommends that DOT require airlines to consistently disclose optional fees and notify passengers of any refundable government fees; USDA determine whether its fee is refundable on unused nonrefundable tickets; and DHS issue guidance on the refundability of its fees. USDA and DHS agreed with the recommendations and DOT did not comment on them.

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

Tuesday, July 13, 2010

Will There Be a Third Stage?

As discussed previously on the blog, the "second stage" Protocol amending the 2007 U.S./EU Air Transport Agreement, 2007 O.J. (L 134) 4, was signed at the end of June.  See also Protocol to Amend the Air Transport Agreement . . . (June 24, 2010) (available here).  The Protocol strengthens aeropolitical relations between the two parties through the Joint Committee established under the first agreement.  Specifically, the Protocol contemplates cooperation on issues such as the environment, social protection, competition, and security.  The Protocol also eliminates the first agreement's suspension clause which allowed the parties to suspend some or all of the treaty's concessions if they were dissatisfied with the outcome of second stage negotiations.  (For more on the suspension clause, see earlier discussion here).

Conspicuously absent from the Protocol, however, are concrete concessions on investment rights.  Despite EU urging to the contrary, the U.S. refused to modify its current 25% cap on foreign ownership in U.S. air carriers.  Instead, the two sides reached a limited compromise whereby U.S. airlines would be afforded limited seventh freedom (stand alone) rights for passenger or combination passenger/cargo services from points within the EU provided each party "permit[s] majority ownership and effective control of its airlines by the other Party or its nationals[.]"  See Protocol, supra, art. 6 (replacing Article 21 of the 2007 Agreement). 

It is far from clear that the offer of limited seventh freedom rights will be enough to entice the U.S. to reform its airline ownership laws.  Perhaps with that in mind, the European Parliament motioned for a resolution last month calling on the European Commission "to start the process of third stage negotiations with a view to include . . . additional foreign investment opportunities."  See Euro. Parliament, Motion for a Resolution to Wind Up the Debate . . . on the EU-US Air Transport Agreement, Session Doc. No. B7-0374/2010 (June 14, 2010 (available here).  Whether these negotiations occur or not remains to be seen.  Until there is a change in Washington's protectionist stance on airline ownership, however, it's difficult to imagine any further progress being made.

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