February 13, 2010
DOT Tentatively Appoves oneworld
The Department of Transportation announced today that it has tentatively approved the oneworld Alliance's application for antitrust immunity. From the press release:
In today’s show-cause order, the Department tentatively found that granting antitrust immunity to the oneworld alliance would provide travelers and shippers with a variety of benefits, including lower fares on more routes, increased services, better schedules and reduced travel and connection times. The Department also said the proposed alliance would enhance competition around the world by creating competition with the existing Star Alliance and the SkyTeam alliance, which already have been granted immunity.
However, the Department also noted that the alliance could harm competition on select routes between between the United States and London’s Heathrow Airport, oneworld’s primary hub, where the availability of landing and takeoff slots is limited. As a condition of approval, the Department is proposing in its show-cause order that the applicants make four pairs of slots available to competitors for new U.S.-Heathrow service. The Department also would require changes to the agreement to ensure capacity growth, and require the carriers to submit traffic data and implement the proposed alliance within 18 months of a final decision.
See Press Release, U.S. DOT, DOT Proposes Approval of oneworld Antitrust Immunity Application, DOT 28-10 (Feb. 13, 2010) (available here).
February 12, 2010
The Welfare Effects of Use-or-Lose Provisions
Blog readers interested in the efficacy of so-called "use-or-lose" provisions which can be found in both U.S. and EU airline regulations will be interested to read Ian Gale and Daniel O'Brien's new working paper, The Welfare Effects of Use-or-Lose Provisions in Markets with Dominant Firms (Fed. Trade Com'n Working Paper No. 299, Feb. 1, 2010) (available here). From the abstract:
A use-or-lose provision requires firms to employ a certain minimum fraction of their productive capacity. Variants have been used by regulators in the airline, natural gas transmission, and electric power industries, among others. The primary objective of these provisions is to limit capacity hoarding. We examine the welfare implications of imposing a use-or-lose provision on firms that are able to buy and sell capacity. We find that imposing such a constraint makes it more likely that a dominant firm will purchase capacity from a competitive fringe. Moreover, imposing the constraint makes aggregate output fall if the dominant firm is more efficient than the fringe. If the dominant firm is less efficient than the fringe, aggregate output rises. In both cases, total surplus can rise or fall.
The Regulation Process
Blog readers interested in regulatory theory should consider reading Edward L. Rubin's new study, The Regulation Process and the Boundaries of New Public Governance (Vanderbilt Public Research Paper No. 10-04, Feb. 10, 2010) (available from SSRN here). From the abstract:
New Public Governance is one of the most significant intellectual movements in the theory of government to have emerged in the past few decades. It suggests that regulators should develop a more modulated, cooperative approach to the task of achieving compliance with regulatory programs, rather than relying on the adversarial stance that characterizes command and control regulation. This speaks directly to the concerns about regulation that have raised by both scholars and elected officials, and that may provide a model for the Obama Administration’s strategy in this important area. The question is when the recommendations of New Public Governance are likely to be most effective, and when they should be treated with caution. This paper advances an answer based on the social theory of Norbert Elias ("The Civilizing Process,” 1939). One feature of Elias’ theory is its suggestion that regulation is not a static process for which one temporally independent approach will be optimal, but a dynamic one that changes and evolves, which means that different approaches will be optimal at different stages of the process. The paper illustrates the applicability of Elias’ theory - and the advantages of a dynamic theory of regulation in general - by using the example of commercial airline regulation. It concludes that the effectiveness of a New Public Governance approach is likely to increase as regulated parties become more accustomed to, and accepting toward, the regulatory framework.
February 10, 2010
Blog readers may be interested in the Tuesday, February 9 edition of PBS's longrunning news show, Frontline. Entitled "Flying Cheap," the episode scrutinizes the tragic crash of Continental Flight 3407 outside of Buffalo, NY last February and what (if any) implications it has for the future of regional carriers. The full episode, along with additional footage and interviews, can be viewed in streaming video online here.
February 8, 2010
No Alliance Switch for JAL
Reports of the demise of the JAL/oneworld Alliance appear greatly exaggerated. The beleaguered and bankrupt Japanese carrier announced today that it will remain part of oneworld and closed its negotiations with Delta Air Lines to jump to SkyTeam. See JAL to Stay With Oneworld, End Delta Talks, Reuters, Feb. 7, 2010 (available here). According to the report, “the burden of upgrading computer systems and other costs” along with the risk that JAL and Delta would not be able to receive regulatory approval for antitrust immunity” influenced the decision.
This is no small victory for oneworld. The alliance partners are still awaiting approval from regulators on both sides of the Atlantic in order to join rivals SkyTeam and Star in being able to deepen their cooperative relationship. Both the European Commission and the U.S. Department of Justice have raised concerns that oneworld would harm transatlantic aviation competition and bar new entrants at heavily trafficked airports such as London Heathrow. Assuming oneworld is able to clear the regulatory hurdles for its transatlantic link-up, its attentions will certainly turn to applying for antitrust immunity for its transpacific services with JAL. Star Alliance members United Airlines and Continental currently have an application pending before the Department of Transportation to cooperate on rates, routes, and services with Japan’s other major airline, ANA.