Thursday, June 18, 2009

DOJ to Offer Input on Star Alliance

According to several news outlets, see, e.g., CNN Money here; Chicago Daily Herald here; & Business Week here, U.S. Attorney General Eric Holder has "reached out to the Department of Transportation" to request that the Department of Justice's Antitrust Division "have some input" into the pending final order for Continental Airlines to join the Star Alliance.  As discussed on the blog last week, the Senate Judiciary Committee issued a letter to Transportation Secretary Ray LaHood requesting the DOT suspend delivering a final order approving and granting antitrust immunity to the alliance until the DOJ could assess the venture.  While both Continental and United Airlines have publicly proclaimed confidence that they will receive final approval, a report which first appeared in the Financial Times stated that the DOJ is looking to "carve out" certain routes from immunization, specifically Newark/Frankfurt.  Under the tentative approval order issued in April, the DOT had planned to remove its preexisting carve outs for the Chicago/Frankfurt and Washington/Frankfurt city pairs.  Now that the DOJ is getting involved, that may no longer be the case.

Despite Holder's assurance that any DOJ inquiry will be over in a matter of weeks, it's important to bear in mind that Star is receiving disproportionate scrutiny from U.S. officials.  SkyTeam, which includes the recently formed Delta/Northwest entity, received a comparative free pass from the DOT on its alliance application.  Depending on the scope of conditions imposed by the DOJ (done under the auspices of "protecting consumers"), regulators may be establishing an inequitable playing field for the transatlantic market and thus undermining the full consumer benefits robust competition between multiple alliances could bring.  No doubt the ongoing oneworld application, which includes American Airlines, British Airways, and Iberia, will also be subject to a DOJ investigation and potential conditions.  With lawmakers and competing airlines (most notably Virgin Atlantic) loudly protesting BA and AA's potential to dominate the U.S./London Heathrow market within an immunized alliance, oneworld may be forced to accept an impaired approval.

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