Increasing momentum for antitrust-immune airline alliances is sparking industry concern that the consolidation of airline power will alter corporate buyer leverage for negotiating transatlantic deals and force companies into alliance agreements rather than individual carrier arrangements.
Assuming approval of pending applications, three clusters of immunized carriers are poised to control more than 80 percent of the North Atlantic market, U.S. Department of Transportation data show. DOT this month tentatively approved a joint venture of four Star Alliance members and Continental Airlines. SkyTeam members Delta, Air France, Northwest and KLM already are restructuring their antitrust-immune corporate programs, and a proposed joint American Airlines-British Airways-Iberia venture is heading toward approval later this year.
The tentative antitrust-immunity approval for Air Canada, Lufthansa Airlines, United Airlines and incoming Star Alliance member Continental would allow the carriers on applicable international routes to share revenue, jointly set fares, schedules and services and negotiate with corporate clients where immunity extends. DOT would require the joint venture—dubbed Atlantic Plus-Plus—to begin operations within 18 months of final approval, and to provide annual reports to DOT about the implementation of alliance agreements.
The proposed joint venture was announced in June 2008 in the wake of the establishment of a similar venture by the four SkyTeam carriers, part of the alliance that Continental plans to depart for Star on Oct. 24.
Several Star Alliance carriers, including United, Lufthansa, Swiss, Austrian and Air Canada, already operate under antitrust immunity in structuring global corporate deals. Star at the end of 2008 said it had 97 corporate agreements in its Corporate Plus program, representing ?2.7 billion in flown revenue.
The DOT docket gives little detail on corporate contract structures, saying only that Star joint venture participants can coordinate "sales and corporate contracts, and joint pricing and management of capacity on certain routes," while sharing "common economic incentives to promote the success of the alliance over their individual corporate interests." Continental said it is "a bit preliminary to discuss what plans are in store for corporate travel buyers," since DOT's approval likely won't be final until May 31.
Still, the tentative approval has sparked concerns. Business Travel Coalition chairman Kevin Mitchell said, "The antitrust immunity, as granted, places at substantial risk the ability of corporations to negotiate with airlines in an equitable manner and should be vigorously opposed by corporate travel buyers as well as travel management companies that service the corporate segment." BTC is soliciting signatures for a letter to DOT and European authorities, seeking to add a caveat to the final approval "that states that it is the prerogative of the corporate buyer, and only the corporate buyer, to request a joint proposal from an airline alliance."
Mitchell said the proposal as it stands "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."
Travel buyers, airline representatives and others during a session at this month's Association of Corporate Travel Executives conference in Washington, D.C., examined the value of working with alliances versus individual carriers.
Vice president and general manager of TRX Travel Analytics Dan Pirnat said, "Our clients are not really seeing the value of many alliance contracts. That's not true across the board, but for the most part. I would fully expect the next 12 to 24 months to be a turning point in terms of whether or not alliances can truly demonstrate tangible value to their clients and show why it makes sense to be working with that alliance."
Pirnat said consolidation, from mergers and acquisitions to antitrust-immune alliance pairings, generally leads to lessened competition. "If you look at the number of competitive offerings on major origins and destinations, there used to be three, maybe four viable options. Now that's decreased to two and sometimes even less. I'm not saying that was by design on the part of the airlines, but it does have an interesting implication," he said. "With less competition on a number of our routes, does it make sense to work with an alliance more globally? Can we obtain more quantifiable value by using an alliance as opposed to a couple of carriers? Complexity is ever-increasing in this sector."
Ingersoll Rand has found little value in alliance deals, global director of travel and meeting services Pascal Struyve said during the conference, noting they could offer value "for some of the biggest programs out there," but that "it's not necessary that an alliance agreement will be the solution for all."
Carlson Wagonlit Travel executive vice president of global supplier management Mike Koetting during the panel said, "On one hand, that may offer you some simplicity in terms of management of negotiations. On the other, you're all procurement professionals. You recognize that could represent a loss of leverage or negotiating flexibility."
As the antitrust proceeding for the Star carriers moves toward final approval, other alliances are advancing their own plans.
In seeking its own antitrust-immune venture with British Airways and Iberia, American CFO Tom Horton during the carrier's first-quarter earnings call this month said the Oneworld carriers are awaiting a scheduling order from DOT that will kick off a six-month period for public comments and review. "We believe we made a very strong case, and we continue to expect that approval will occur in the second half of this year," Horton said.
American Airlines vice president of global sales Frank Morogiello during a conference session said, "The reality is most buyers don't need a full-blown alliance type of program. There are probably less than 20 in the world." Morogiello said the benefits afforded by antitrust immunity are felt more strongly for the airlines "outside the corporate arena."
Further along in their venture plans, Delta, along with wholly owned subsidiary Northwest, is working to integrate corporate sales functions with antitrust-immune SkyTeam partners Air France and KLM. Delta and Air France declined to update the corporate contract coordination enabled by last year's approval of antitrust immunity. However, Delta CEO Richard Anderson told BTN earlier this year that the two carriers would commence joint corporate contracting this month, then fold in the Northwest-KLM piece by year-end
(BTNonline, Jan. 20).Meanwhile, the American Society of Travel Agents and the Interactive Travel Services Association warned about growing airline dominance in structuring agency and distribution agreements. Concerning the tentative approval of the Star application, ASTA and ITSA said the deal "could be used to undermine independent travel distributors, which are critical to promoting airline competition and consumer welfare. The result will be fewer choices and higher prices for consumers."
ASTA and ITSA during the DOT proceeding argued, "Plans to cooperate in the area of distribution and sales are contrary to the public interest," and ultimately would force "independent travel distributors to accept lower prices for their services."
In its tentative approval, DOT this month rebuffed those requests, claiming, "we tentatively find that the proposed alliance should not operate with special restrictions on distribution or sales."