Thursday, February 5, 2009

Rep. Oberstar (D - MN) Proposes Bill to Limit Airline Anti-trust Immunity - We Propose Limiting Congress

Congressman Oberstar has introduced new legislation that would not only limit future airline anti-trust immunity but also re-examine the existing pacts that have already been negotiated and approved. Anti-trust immunity (ATI) allows members of an airline alliance to jointly coordinate fares, schedules and sales efforts. Normally, airlines are required to compete against each other in these areas but when they form marketing alliances (a la Star, oneworld or Skyteam) they frequently ask for Anti-trust immunity in order to fully realize the benefits of such tie-ups.

To be blunt, with all due respect, we feel that Congressman Oberstar is far off the mark with his concerns. Continental has already commented and was much more delicate (for obvious reasons) in their response than we will be.

In the news release, Congressman Oberstar claims that "He said competition among carriers is declining, resulting in higher fares, especially on routes between the United States and Europe."

Really? Congressman, have you noticed the flury of new route announcements offering new and enhanced service to Europe in the last six months? Your own constituent, Northwest Airlines has added new flights from Seattle, Minneapolis, and Detroit to London Heathrow in the last nine months. (OK, so Seatte didn't work out so well.) Delta has added slugs of new service including routes such as JFK-Malaga, Spain, JFK-Prague to name just a few. And lets talk about the explosion of new flights from London Heathrow following liberalization there. Continental has added flights from Houston, Newark and Cleveland. Delta has added Atlanta and New York. And new service hasn't been limited to just US carriers - Air France tried (and failed, mind you, because of TOO MUCH competition) to operate London Heathrow-LAX flights, BA's new subsidiary OpenSkies has added flights from JFK to Amsterdam and Paris-Orly. Need I go on?

Next "Oberstar called the immunity grants 'a de facto merger of these airlines,' and said the result is less competition. He said in 1990 there were six airlines competing on the route between Paris and New York's Kennedy Airport, while today there are only three, with SkyTeam alliance partners Air France and Delta Air Lines Inc. controlling 75 percent of the market."

Again, really? Lets look at who was operating JFK-Paris in 1990. If memory serves, that would probably be Air France, American, TWA, Pan Am, Air India and one other "5th Freedom" carrier operating to the US via Paris.

I don't know about you, but I don't really miss TWA or Pan Am. Air India isn't exactly my first choice of airlines either.

Now we have Air France operating a slug of flights (all codeshared with Delta), American operating two 767-300 widebody flights daily plus new competition from British Airways via OpenSkies. And this does not include the rise of flights from Newark which includes nonstop flights on Continental (3 daily flights this summer) plus Air France, plus BA's new acquired Le' Avion (yet another new competitor)

And finally, back to your constants, Congressman, lets look at the unparalleled success that Northwest Airlines has been able to achieve through a very tight alliance with KLM. This was one of the first alliances and the first to be granted full ATI. Without ATI, there is emphatically no way that your home-town airport, Minneapolis-St. Paul could support even one daily nonstop to Amsterdam, let alone the three widebody nonstops per day that Northwest and KLM will be operating this summer. Without the ability to share in costs and risks, coordinate schedules and fares etc, these flights simply would not exist. Similarly, Northwest and KLM have combined forces to operate a number of other routes that would never see service without full ATI such as Hartford-Amsterdam and Memphis-Amsterdam. I am sure the tax-payers in both of those cities are proponents of ATI because of the new service it has afforded them.

The best benefit for consumers and our ailing airline industry would be to allow for increased Anti-trust immunity as it actually provides more service in an already brutally competitive industry. We don't need six carriers operating from JFK to Paris. If JFK to Paris is so lucrative, any airline could start flying it tomorrow.

We should allow more ATI, not less. Now that London Heathrow has been opened to flights from all airlines, oneworld should promptly be given ATI. Similarly, now that Continental has taken the bold step of switching alliances (from Skyteam to Star) lets allow them to vigorously compete under the ATI umbrella.

Congressman Oberstar, please let us know when you are ready to hold hearings on this matter - we are ready to share the traveling public's voice.


  1. I can assure you that the airlines fully intend for the benefits of ATI to accrue entirely to them: flyers who get seduced by the marketing gimmicks that follow from alliances and ATI - FFP enhancements etc - are entirely missing the point. It is all about price coordination and leverage. BA/AA ATI from NYC-LON is going to be manifestly bad for consumers - especially for the high-value premium corporate consumers, who are going to pay more up front once BA and AA can coordinate pricing and strategy.

    Unlike many in the WSJ comments, I won't pretend to know Oberstar's motive for introducing this kind of legislation. And I'm not against all ATI. DL/KE ATI should continue to work reasonably well as a foil to Star Alliance's strenght to Asia, and I suppose if BA and AA are going to create fortress hubs, then DL and AF ought to be able to do so too. But 'for the consumer' is simply not a motive airlines are familiar with, except as a sales pitch.

  2. Totally agree that the benefits for airlines are indeed purely financial - while the benefits advertised for consumers (FFP in particular) are weak. But, in general, ATI does allow airlines to expand and bring additional air service (not less.) MSP-AMS is a classic example - without ATI, this route would NEVER exist.

    As for JFK-LHR - There is still substantial competition on this route besides market leaders BA and AA. Virgin, Delta, and Kuwait all operate from JFK along with CO, Virgin and Air India from EWR. And, with open skies, if BA and AA are successful in actually driving fares (further) north than any airline can start service if they feel it is that lucrative.

  3. I think the sixth carrier you're missing in the JFK-Paris market in 1990 is the late, unlamented Tower Air. If you don't miss TWA or Pan Am, you certainly won't miss Tower, an airline that made passengers long for the days of wagon trains.

  4. Ahh, yes. How could I have forgotten Tower Air. Talk about scary old 747s. I remember them well. Thanks for the reminder!