August 31, 2011
Regulatory Capture Avoidance
On August 19, the FAA announced a new rule restricting the capacity in which carriers may employ former FAA safety inspectors for two years after those inspectors leave the agency (FAA press release available here). Creation of this rule was undoubtedly motivated by the 2008 scandal in which FAA inspectors were found to have allowed carriers to avoid aircraft inspection requirements. While less controversial than the passenger protection rules that went into effect the following week, this rule is aimed at a problem that is arguably more important. It is a welcome development that should benefit the agency, the industry and the public.
August 30, 2011
Potential Implications of Canada's Competition Tribunal Proceedings Against Air Canada/United Venture
The decision of Canada's Competition Bureau to bring formal proceedings against Star Alliance members Air Canada, United and United's recent merger partner, Continental Airlines, could open the door to fracturing the alliance system. Since the 1990s, States have expressed a desire to have their carriers integrated into an alliance by finalizing Open Skies agreements with the United States as a prerequisite for their airlines receiving antitrust immunity from the U.S. Department of Transportation. Following the historic 2007 U.S./EU Air Transport Agreement, the world's three major alliances - Star, SkyTeam and oneworld - developed deep integration plans that raised the eyebrows of consumer groups, antitrust authorities at the Department of Justice, and non-alliance airlines. Even so, the DOT proceeded to garland all three alliance plans with immunity. The European Commission opened its own investigation into the alliances, though the impact of these proceedings was negligible. After a handful of slot surrenders at congested EU airports and some other, minor concessions, the transatlantic alliances were free to work closely on rates, routes, scheduling and revenue sharing. Following the 2009 U.S./Japan Open Skies accord, the transpacific market appeared ripe for alliance dominance. It appeared the emergence of three "global brands" in the airline industry was a Hegelian inevitability.
Now Canada has stepped into the fray, though its motivations remain unclear. Few analysts deny the proposition that the alliance have an adverse impact on competition, or to use an antiquated phrase, constitute a "restraint on trade." However, government authorities, particularly the DOT, have been willing to tolerate the alliances' supposed anti-competitive effects in exchange for the public benefits of creating worldwide route networks and pooled perquisite programs. Has the Canadian Competition Bureau had a change of heart? If so, what impact will it have on the alliance system? Should the Competition Tribunal come down against Star, the immediate effect would be to exclude Air Canada - a longtime partner of United - from the full integration benefits of the Star Alliance. Arguably, this would be detrimental to Air Canada's immediate commercial interests and perhaps compromise the airline's ability to compete effectively at the global level.
Potentially more troubling, the proceedings may inspire other jurisdictions to open their own, disparate investigations. While it is likely that many countries will continue to embrace airline alliances, others - depending on regulatory temperament - may be inclined to eschew the DOT's favorable disposition to the alliances in favor of stricter conditions or, perhaps, ordering full de-integration of the investigating States' airlines from the alliance system altogether. The result could be an effective "de-globalizing" of the three major alliances.