February 21 -  It’s Time To Review Airline Antitrust Immunity


INDUSTRY ANALYSIS

By law, the U.S. Department of Transportation (DOT) has the decision-making authority to award antitrust immunity (ATI) for joint ventures among airline alliance members allowing them to fix prices and agree on capacity and flight schedules – activities otherwise illegal under U.S. antitrust laws. The U.S. Department of Justice (DOJ) has an advisory role.

As part of its Open Skies (OS) policy, the USG has used the ATI lever to incentivize foreign airlines to lobby their governments for agreements to open markets. However, that ATI/OS inter-dependence was premised on robust new entry and a market structure that ensures vigorous competition that outweighs the decrease in competition that is a risk of every grant of immunity. Put differently, the policy was premised on the assumption that consumers would be better off with OS and grants of ATI than if an OS agreement was not achieved.

It is time for a hard look at whether ATI is still in the public interest given: 1) the extraordinary degree of airline consolidation limiting potential new entrants; 2) unprecedented US-Europe market power of the immunized Delta/American/United-led alliances and joint ventures resulting in record profits; 3) the higher versus promised lower fares in gateway-to-gateway city-pair markets across the Atlantic; 4) the collusion of the largest network carriers and their European immunized joint venture partners to wage a regulatory war to block or restrict new entry by Norwegian, Gulf Carriers and Air Italy; 5) that those same U.S. airlines called upon DOT to abolish virtually all consumer protections; and 6) that consumers have no private right of action when airlines pursue unfair and deceptive practices and unfair methods of competition.

Abetted by many dominant U.S. and European airlines, there is a transatlantic protectionist movement underway to increase barriers to entry and allow prices in city-pair markets to soar. For example, 100 percent of the New York City-to-London Heathrow market is controlled by 3 immunized alliances. Those alliances went from 41 percent market share in the U.S.-to-Europe market in 2000 to some 90 percent today. As of 2016 average one-way transatlantic airfares were 22% higher than they were in 2000 while domestic U.S. airfares were down some 15% over the same timeframe, according to the DOT Bureau of Transportation Statistics.

New airline entry is urgently needed in the transatlantic market to protect consumers. However, the dominant network airlines collude under cover of ATI and the Noerr-Pennington “free speech” exception to the antitrust laws to lobby against new entrants and to frustrate new competition by blocking access to important airports where takeoff and landing slots are fully subscribed and largely in the pockets of alliance airlines. These new market realities cry out for a fresh approach; however, DOT has shown no willingness to consider changes in its rubber-stamp approvals of most applications for immunity and an unwillingness to engage in De Novo reviews of past grants.

It is thus time for the U.S. Congress to enact a law that transfers the authority to grant immunity from DOT to the DOJ where the legal expertise resides to determine if ATI still represents solid public policy and, if so, to properly review these alliances on a 3 to 5-year basis with a docket for industry and consumer input. DOT can play an advisory role.

In all other sectors of the U.S. economy where consumers require protection from anticompetitive behavior, DOJ and its expert lawyers and economists are at the helm keeping, for example, Ford and General Motors or Coke and Pepsi from colluding. Only in aviation, in an outdated anomaly, does DOT have the authority to permit airlines to ignore antitrust laws. Over 25 years, DOT has granted virtually every request to allow carriers to stop competing and start colluding. It’s time to give ATI review to true antitrust experts at DOJ.

©2001 to 2018 Business Travel Coalition, Inc..