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).
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 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 Airport. See 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 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."
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.