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).
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 20, 2010
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.
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 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.