Friday, November 6, 2009

Renewed Continental/United Merger Rumors

There's been a new round of reporting on the possibility of a Continental/United Airlines merger.  See, e.g, Michael Doermer & Tom Lavall, Continental May Reconsider Combining with United, Bloomberg, Nov. 3, 2009 (available here); Alison Grant, Talk of Continental/United Merger Renews Questions for Cleveland Hub, Plain Dealer, Nov. 3, 2009 (available here).  Adding to the speculation is the fact that United's Chief Executive Glenn Tilton's recent remarks that there needs to be more consolidation in the U.S. aviation industry.  See Justin Baer, UAL Chief Sees New Route to Airline Mergers, Fin. Times, Oct. 27, 2009 (available here).

Even if it's true that the U.S. market requires further consolidation, a major merger between United and Continental may face significant legal hurdles.  Unlike last year's Delta/Northwest merger, which was completed under the watch of the Bush Administration, Continental and United would be facing a far less benign antitrust enforcement environment.  Cf. Christine A. Varney, Assistant Attorney General, U.S. DOJ Antitrust Division, Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available here). 

November 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, November 5, 2009

Delta and American Continue to Court JAL

The Wall Street Journal is reporting that both American Airlines and Delta Air Lines are intensifying their efforts to forge a deepened alliance relationship with Japan's JAL.  See Mariko Sanchanta, American, Delta Step Up JAL Lobbying, Wall St. J., Nov. 5, 2009 (available here).  The story outlines the proposals made by both carriers to JAL, along with surveying the troubled Japanese airline's plans to return to financial health.  There are a few important points the story missed, however.

First, both American and Delta are hanging their alliance hopes on a potential U.S./Japan open skies deal being reached.  As of last week, however, no such deal was attained.  News reports also indicated that Japan is seeking to limit slots for U.S. airlines at Tokyo's two international airports.  Such restrictions cut against the open market ethos of the open skies template.  If the U.S. signs an agreement with Japan that still allows the latter to impose these discriminatory restrictions, there is no guarantee that it will meet the Department of Transportation's longstanding requirement for an open skies agreement to be in place before it bestows the boon of antitrust immunity to an alliance. 

Second, with the oneworld Alliance antitrust immunity application delayed due to objections from the Justice Department, it's unclear how liberal the DOT will be in the future with respect to bestowing immunity.  There is significant public pressure on the DOT to scale-back its immunization grants or to apply more stringent criteria when determining whether immunization is in the public interest.  Even if a U.S./Japan open skies deal is reached, it may no longer be enough to win blanket antitrust immunity.

Last, the 2009 FAA Reauthorization Act, though on hold while Congress attempts to pass health care reform legislation, still contains a provision which would sunset all antitrust immunity for alliances within three years after taking effect.  While the alliances could reapply for immunity after the sunset, Rep. James Oberstar--the provision's Congressional champion--has indicated that further reforms to the DOT's immunization authority may be in order.

In short, no matter how enticing the American and Delta pitches to JAL are, upheavals in international trade and regulatory policy could lay waste to their best laid plans. 

November 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 3, 2009

New Rule Favors Airline Labor

Further evidence that labor holds significant sway over U.S. air transportation policy surfaced yesterday as the National Mediation Board announced that it is contemplating revising its longstanding rule under the Railway Labor Act which counts abstentions from airline and railway unionization elections as "no" votes.  See Representation Election Procedure, 74 Fed. Reg. 56,750 (Nov. 3, 2009).  Since 1934, unionization under the Act requires a true majority of a company's workers to vote "yes" rather than a mere majority of those who turn out for the election.  If the NMB goes forward with its proposal, however, the far more labor-friendly requirement based on actual election turnout will control.

For further information on the proposal, along with stiff criticism from both the airlines and lawmakers, see Terry Maxon, ATA, Two Lawmakers Oppose Change in Union Rep Elections, Airline Biz Blog (Nov. 3, 2009) (available here); Mike Esterl & Melanie Trottman, New Rule to Benefit Rail, Plane Unions, Wall St. J., Nov. 3, 2009 (available here).  For more on the Act itself, see Katerine Van Wezel Stone, Labor Relations on the Airlines: The Railway Labor Act in the Era of Deregulation, 42 Stanford L. Rev. 1485 (1990); Malcolm A. MacIntyre, The Railway Labor Act--A Misfit for the Airlines, 19 J. Air L. & Com. 274 (1952).

November 3, 2009 | Permalink | Comments (0) | TrackBack (0)

Labor Softening Up to Alliances?

The Associated Press ran a story a few days ago indicating that the Association of Professional Flight Attendants, the union representing American Airlines' flight attendants, is supporting the airline's bid to receive antitrust immunity for the oneworld Alliance.  See Union Backs American Airlines Antitrust Immunity, Assoc. Press, Oct. 29, 2009 (available here).  From the story:

The Association of Professional Flight Attendants said Thursday airlines that have forged global alliances have benefited from strong job and revenue growth. That puts the flight attendants at odds with the pilots' union at American, which opposes immunity and says the deal with BA and Iberia will lead to job losses.

. . .

The president of American's flight attendants' union, Laura Glading, said immunity offers the best chance to protect and create jobs at American. A third union at American, the Transport Workers Association, which represents about 25,000 ground workers, endorsed the antitrust immunity bid in June.

November 3, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, November 2, 2009

Are the Bunkrupt Skies the Friendliest?

Though it's not available yet, a working paper by University of Virginia economists Federico Ciliberto and Carola Schenone may interest blog readers.  See Are the Bankrupt Skies the Friendliest? (Working Paper, Oct. 12, 2009) (available from SSRN here).  From the abstract:

We use data from the U.S. airline industry to investigate whether firms operating under Chapter 11 protection systematically and permanently restructure their real product-market operations by changing the variety and the quality of the products that they offer. We further analyze whether the bankrupt firm’s competitors introduce and maintain changes in their product market. We find that bankrupt firms significantly decrease the frequency of flights between airports, the number of destinations that they serve, and the probability that they provide non-stop service in a particular market. These changes outlive the firm’s bankruptcy period. We do not find evidence of statistically and economically significant changes by the airline’s competitors along any of the dimensions above, except for a significant increase in the number of destinations the competitors serve. With regard to the quality of services, we find that the bankrupt firms temporarily lower the percent of cancelled flights and the percent of flights with a delay upon arrival of at least 15 minutes. Both of these changes are temporary, as cancellations and delays return to pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy court protection. Finally, we find that the age of the fleet flown by bankrupt firms declines. This change is permanent.

November 2, 2009 | Permalink | Comments (0) | TrackBack (0)