The U.S. Department of Transportation last week tentatively agreed to allow Continental Airlines to join a group of Star Alliance partners already covered by antitrust immunity. DOT granted preliminary approval, which is open to public commentary through 28 April, was granted despite proposed U.S. legislationthat would require tougher examination of new immunity requests. DOT also did not include restrictions on corporate sales, travel agency contracting or distribution activities, as some interested parties requested.
Meanwhile, members of the oneworld alliance await a DOT decision on their immunity requestas SkyTeam partners continue to more closely coordinate their sales functions. Despite such developments, some corporate travel buyers say they still do not find value in alliance deals and expect further carrier coordination to diminish competition.
"In many cases, I don't necessarily believe there is value," said Ingersoll-Rand global director of travel and meeting services Pascal Sturyve, speaking at this month's Association of Corporate Travel Executives conference in Washington, D.C. "For some of the biggest programs out there, it could be of value, but everyone has to judge for themselves. Alliance agreements as a solution for all will never happen."
"Our clients are not really seeing the value of alliance contracts," added TRX Travel Analytics vice president and general manager Dan Pirnat.
Even the vice president of global sales for American Airlines--which seeks multilateral antitrust immunity with British Airways, Iberia, Finnair and Royal Jordanian-- questioned the value of alliance deals.Nevertheless, AA is pinning its ability to compete globally on deeper integration with oneworld partners.
Meanwhile, SkyTeam announced plans for "a centralized SkyTeam management entity that would handle sales, marketing, airport operations and other functions. The airline alliance aims to have the management team in place "by late 2009." At the same time, Delta Air Lines is planning to represent SkyTeam partner Air France for corporate sales in the United States, according to a travel agency source speaking anonymously to The Transnational. A Delta spokeswoman said the airline would not comment. Northwest Airlines (now owned by Delta) had handled North America sales and marketing activities for KLM (now owned by Air France), and vice versa in Europe, since the late 1990s.
Star Alliance's tentative approval by DOT specifically would allow Continental to more closely align with Air Canada, Austrian Airlines, bmi, Lot Polish, Lufthansa, SAS, Swiss, TAP Portugal and United Airlines, and create a joint venture with Air Canada, Lufthansa, and United. "We tentatively find that the proposed alliance is consistent with the public interest, will produce public benefits and will not substantially reduce competition," according to DOT.
Among other standard provisos, DOT's conditions for expanded Star immunity include requiring partner carriers to "completely" implement the four-way JV "within 18 months" and prohibiting them from cooperating on domestic U.S. services.
Conditions do not include restrictions on distribution and sales--a consumer protection sought by the American Society of Travel Agents and the Interactive Travel Services Association. "Many of the public benefits depend upon an integrated joint venture that makes efficiencies possible in marketing, sales and distribution," DOT wrote. "Therefore, we tentatively find that the proposed alliance should not operate with special restrictions on distribution or sales."
ASTA and ITSA officials plan to file objections during the current comment period and said they "are alarmed that DOT would permit huge airlines to combine their bargaining power against both traditional and online travel agents."
The Business Travel Coalition suggested Star antitrust immunity "places at substantial risk the ability of corporations to negotiate with airlines in an equitable manner. The antitrust immunity provisionally granted by DOT gives the Star Alliance legal impunity to act as a group and the latent right to threaten a corporation that unless it accepts, for example, a joint airline proposal for transatlantic purchases, then immunized members of the alliance will refuse to do business with it." That, according to BTC, would lead to higher prices and fewer benefits for corporate buyers unable or unwilling to accept an alliance deal.
BTC authored a signatory letter to be sent to DOT Secretary Ray LaHood and European Commissioner for Competition Neelie Kroes that seeks "language that unequivocally states that it is the prerogative of the corporate buyer, and only the corporate buyer, to request a joint proposal from the Star Alliance. This modification should likewise be applied to past and future grants of antitrust immunity to airline alliances."
Others also expect that closer airline coordination generally could jeopardize competition. "By definition, there will be fewer agreements and alliances in your portfolio," said Carlson Wagonlit Travel executive vice president of global supplier management Michael Koetting, speaking during the ACTE conference about both alliance integration and consolidation. "On the one hand, that may offer you some simplicity in terms of management and negotiations. On the other hand, that may also represent a loss of leverage and negotiating flexibility."
TRX's Pirnat added that alliance development and carrier consolidation already has reduced competition in some regions. "When you look at the number of competitive offerings on major [routes], you see that there used to be three or four viable options. Now that has decreased to two, or sometimes less." That, he said, would make buyers reconsider alliance deals as a possible avenue to more value, "as opposed to a cobbled together set of carriers."
"I fully expect that the next 12 to 24 months will be a turning point for alliances--whoever they might be--to demonstrate tangible value to their clients and show why it makes sense to be working with that alliance," Pirnat said.