February 27 - BTC Letter To U.S. DOT Secretary Ray LaHood Regarding ATI Alliances

February 27, 2009

The Honorable Ray LaHood


U.S. Department of Transportation

1200 New Jersey Ave. SE

Washington, DC 20590

Dear Secretary LaHood,

I write to express deep concern that the current marketplace structure of two antitrust immunized alliances – SkyTeam and Star - could be locked into place while lengthy studies are undertaken to establish the efficacy of long-standing U.S. policy in this area. This could not happen at a more dangerous time for consumers in the U.S. and Europe. SkyTeam now has the largest, most ubiquitous airline in the world with its member Delta Air Lines, and Star continues to increase its dominance, especially through Lufthansa’s acquisition spree in Europe.

Corporate travel buyers require a third immunized alliance more than ever. Star in particular requires competitive discipline. Lufthansa has grown so dominant in Germany that its policies and practices undermine modern travel management, harm the structure of the travel distribution system and rob consumers of choice. Lufthansa is also increasing its dominance throughout Europe. There is simply no substitution for effective competition to curb the most egregious and anti-consumer practices of dominant airlines. Right now, an immunized oneworld alliance is critical to boost competition levels and mitigate the threat to consumers that insufficiently contested Lufthansa, Star and SkyTeam pose.

The 20-year U.S. policy toward immunized alliances, designed to liberalize markets and provide airlines with opportunities to efficiently expand services, was formulated in a global context where, then and now, true mergers and acquisitions are not options. A major milestone was the EU-U.S. Open Skies accord. A study of U.S. policy mid-stream introduces the likely prospect that this Open Skies accomplishment will collapse as the next phase is negotiated. What’s more, transatlantic competition levels would be perversely impacted if current oneworld members, sensing a frozen global alliance marketplace structure, defect to SkyTeam and Star further strengthening those alliances’ dominant market positions. This is the exact opposite result for consumers such a study would likely produce.

The Department has the authority, and indeed, is currently reviewing its interpretative approaches to granting antitrust immunity specifically with respect to Continental Airlines’ application to join the Star Alliance as an immunized member. It is BTC’s position that such a review is appropriate and timely and should seek to reduce the breadth of commercial practices that are immunized. For example, Star seeks antitrust immunity that provides members with legal impunity to act as a group, and the ability to threaten a corporation that unless it accepts a joint airline proposal for tickets, then members of the alliance would be able to refuse to do business with it. This is unacceptable to corporate buyers of commercial air transportation services and should be dealt with by the Department.

There is a material difference, however, between adjusting alliance immunity policy and throwing into serious question the pillars of modern U.S. – EU transportation policy. This places at the greatest possible risk at the worst possible time the competitive structure of the transatlantic marketplace, the EU-U.S. Open Skies breakthrough-accomplishment and the commercial plans and investment strategies of airlines. U.S. and EU consumers will be substantially harmed by each of these outcomes.

It has been BTC’s long-held view that in the absence of airlines being allowed to acquire and merge as other global industries are - with stringent antitrust reviews - that global alliances are the best available proxy for enabling international expansion with cost, revenue and capital structure advantages that can translate into consumer benefit. There is a time and place to strategically review immunized alliances, foreign ownership laws and Open Skies arrangements. However, that time is not now; we need a third competitive global alliance as soon as possible to protect competition and the consumer against growing threats of market concentration.

Such a strategic review should be in the larger context of developing a coherent U.S. national air transportation policy that thoughtfully intersects with national energy and environmental policies. We have none of these policies in place today, which is why we seem to lurch from one aviation crisis to the next often making poor policy choices. Hopefully, the Administration will support a comprehensive and integrated approach to policy development in these areas.


Kevin Mitchell


Copy: The Honorable Rahm Emanuel

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