Wednesday, February 23, 2011
Two economists from the Justice Department's Antitrust Division, William Gillespie and Oliver M. Richard, have a new working paper available, Antitrust Immunity and International Airline Alliances (Economic Analysis Group Discussion Paper No. EAG 11-1, Feb. 18, 2011) (available from SSRN here). From the abstract:
Most of the major carriers worldwide have joined one of three international airline alliances. The U.S. Department of Transportation has granted immunity from the U.S. antitrust laws to many carriers within these alliances. This article assesses the competitive effects and efficiencies associated with such grants. A grant of antitrust immunity to carriers in an alliance reduces competition in routes where these carriers offer competing flights, and the data show that fares paid by passengers for travel in non-stop trans-Atlantic flights are higher in routes with fewer independent competitors. The data also show that the alliances can produce pricing efficiencies for trans-Atlantic passengers who travel with connecting itineraries, but antitrust immunity within an alliance is not necessary to achieve such efficiencies.
All Nippon Airways and Lufthansa announced today that they are seeking an antitrust waiver from the Japanese Government to cooperate on pricing, schedules, and revenue sharing on routes between Europe and Japan. See ANA, Lufthansa to Set Up JV for Japan-Europe Routes, Reuters, Feb. 23, 2011 (available here).
The joint venture will also be subject to the European Commission ex post antitrust review under Article 101 of the Treaty on the Functioning of the European Union. If the Commission believes the deal would threaten competition, the carriers may be forced to offer concessions, such as transferring slots from its hub airports, to one or more of the airlines' competitors.
Wednesday, February 16, 2011
According to a leaked United States embassay cable released by Wikileaks, the United Kingdom was contemplating pulling out of the 2007 U.S./EU Air Transport Agreement if the U.S. Department of Transportation failed to grant antitrust immunity to the oneworld Alliance. See Tim Webb, UK 'Threatened to Pull out of Open Skies Deal', Leaked US Cables Show, Guardian, Feb. 14, 2011 (available here). The news confirms the speculation offered by industry analysts (including the writers of this blog) that disapproval of the oneworld Alliance application could have had dire consequences for the 2007 Agreement. Since the DOT's immunization of the alliance, the European Union has agreed to remove to the so-called "suspension clause" from the Air Transport Agreement as part of the Second Stage Protocol which amended the treaty last year.
Thursday, February 3, 2011
Severin Borenstein has a fascinating new paper available, On The Persistent Financial Losses of U.S. Airlines: A Preliminary Exploration (NBER Working Paper No. 16744, Jan. 2011) (available here). From the abstract:
U.S. airlines have lost nearly $60 billion (2009 dollars) in domestic markets since deregulation, most of it in the last decade. More than 30 years after domestic airline markets were deregulated, the dismal financial record is a puzzle that challenges the economics of deregulation. I examine some of the most common explanations among industry participants, analysts, and researchers -- including high taxes and fuel costs, weak demand, and competition from lower-cost airlines. Descriptive statistics suggest that high taxes have been at most a minor factor and fuel costs shocks played a role only in the last few years. Major drivers seem to be the severe demand downturn after 9/11 -- demand remained much weaker in 2009 than it was in 2000 -- and the large cost differential between legacy airlines and the low-cost carriers, which has persisted even as their price differentials have greatly declined.
Mother Nature's winter storm assault on the Midwest is exacting a heavy toll from the airline industry. See Mike Estrel, Weather Whacks Airlines' Revenues, Wall St. J., Feb. 2, 2011 (available here). The final damage may not be known for weeks, but needless to say it will not be pretty. As the story discusses, the airlines are already battling rising fuel costs as they struggle to return to consistent profitability after the skid which began in 2007.