September 8, 2010
DOT Denies Delta/Virgin Blue Antitrust Immunity
In a surprising move, the Department of Transportation announced today that it plans to deny antitrust immunity to the Delta Air Lines/Virgin Blue alliance despite the existence of an "Open Skies" agreement between the United States and Australia. From the press release:
The U.S. Department of Transportation (DOT) today proposed to deny an application for antitrust immunity made by Delta Air Lines and affiliates of the Virgin Blue Group with respect to joint services between the United States and Australia. Antitrust immunity allows airlines to closely coordinate their international operations. In today’s show-cause order, the Department tentatively concluded that Delta and the Virgin Blue Group had not demonstrated that the alliance would produce sufficient public benefits to justify a grant of antitrust immunity.
The Virgin Blue Group includes V Australia, Virgin Blue, and Pacific Blue Airlines affiliates in both Australia and New Zealand. In reaching its tentative decision, the Department noted that Delta and its partners have only recently entered the U.S.-Australia market, have not shown developed plans to operate as commercial partners, and have limited their cooperation to a handful of routes, thereby limiting the public benefits their alliance might produce. The Department also said that Delta and the Virgin Blue Group had failed to show that their alliance would have positive effects for consumers, such as lower fares or increased capacity.
See Press Release, Dep't of Transp., DOT Proposes to Deny Antitrust Immunity for Delta/Virgin Blue Alliance (Sept. 8, 2010) (available here).
Over the past several year the DOT has been accused of dispensing antitrust immunity too freely as a concession for States signing liberal air services agreements with the U.S. Even so, the DOT has immunized all three major transatlantic alliances--oneworld, SkyTeam, and Star--and had been expected to grant immunity to the pending United/Continental/ANA and American Airlines/JAL applications. It's unclear whether today's decision demonstrates an about-face on antitrust immunity grants or merely the weakness of the Delta/Virgin Blue application.
Readers interested in reading today's tentative order may do so here.
Do Incumbents Improve Service Quality in Response to Entry?
Blog readers may be interested to read a new paper by Jeffrey Prince & Daniel H. Simon, Do Incumbents Improve Service Quality in Response to Entry? Evidence From Airlines' On-Time Performance (Working Paper Sept. 1, 2010) (available from SSRN here). From the abstract:
We examine if and how incumbent firms respond to entry, and entry threats, using non-price modes of competition. Our analysis focuses on service quality within the airline industry. We find that incumbent on-time performance actually worsens in response to entry, and even entry threats, by Southwest Airlines. Given Southwest’s general superiority in on-time performance, this result is consistent with equilibria of theoretical models of quality and price competition, which generally predict differentiation along quality. We corroborate this intuition with further analysis, showing there is no notable response by incumbents when an airline with average on-time performance (Continental) threatens to enter or enters a route.
September 7, 2010
$1 Billion to Expand O'Hare
Just one day prior to his stunning announcement that its leader will not seek reelection as Chicago's Mayor in 2011, the Daley Administration announced that it needs an additional $1 billion to continue its massive O'Hare Airport expansion project. See John Hilkevitch & Julie Johnsson, Chicago Hopes to Borrow Another $1 Billion for O'Hare Expansion, Chi. Tribune, Sept. 6, 2010 (available here).