The U.S. Department of Transportation in a final decision late last week approved Continental Airlines' request to join the Star Alliance as an antitrust-immune member and form a transatlantic joint venture with Air Canada, Lufthansa and United Airlines. The final decision makes some concessions to the U.S. Justice Department, which in the course of weeks of delays sought to limit the degree of cooperation tentatively approved in April.
DOT allowed Continental to join the already-immune alliance of Air Canada, Austrian, Bmi, Lufthansa, LOT, SAS, Swiss, TAP and United, allowing those carriers to jointly set prices, schedules and cooperate more deeply on transatlantic routes.
The approval also enables the joint venture proposed by Continental, United, Lufthansa and Air Canada
(BTNonline, June 30, 2008). DOT gave the carriers 18 months to implement the arrangement and "make the benefits of the alliance available to consumers as soon as possible."
DOT, however, heeded the Justice Department's request to "carve out the transatlantic and transborder markets where competitive harm is most likely to occur, maintain existing carve outs, and limit immunity to transatlantic markets."
As such, DOT in the final decision did not grant immunity to Star carriers on the following routes: Houston-Calgary, Houston-Toronto, Cleveland-Toronto, NYC-Halifax, NYC-Ottawa, NYC-Stockholm, NYC-Copenhagen, NYC-Lisbon, NYC-Geneva, and NYC-Zurich. DOT also would not extend immunity to United and Continental between the United States and Beijing.
On those routes, the carriers will not be able to coordinate on "pricing, inventory or yield management coordination, pooling of revenues," and other benefits extended elsewhere.
DOT also included new reporting requirements "that will enhance the Department's ability to monitor the competitive effects of the alliance."
Meanwhile, DOT in its final order said it would stick to its tentative approval by not limiting the carriers' ability to coordinate on agency and distribution deals, as requested by the American Society of Travel Agents and the Interactive Travel Services Association.
"We are pleased to receive final approval from the Department of Transportation," said Continental CEO Larry Kellner in a statement. "Continental is working to provide a seamless transition for its customers from the SkyTeam alliance to Star Alliance this fall. The DOT decision greatly benefits our customers, employees and shareholders. It ensures global competition with other antitrust immunized alliances while encouraging the retention and growth of open skies between the U.S. and other nations."
British Airways' agreement with American Airlines and Iberia to form a joint venture—similar to the one approved Friday and one already implemented between Delta Air Lines and Air France-KLM—is the last transatlantic deal to await approval from U.S. authorities.
American Airlines anticipates DOT will approve its application by its statutory deadline of Oct. 31, and CEO Gerard Arpey yesterday during the carrier's quarterly earnings call said, "The fact that Continental just got approved is more evidence that the facts are on our side, so I don't want to be overly optimistic here, but I do believe the weight of the evidence suggests there is absolutely no reason for us to not be put on a level playing field with our competitors."
In a filing with U.S. regulators this month, American said, "The lack of consistent grants of antitrust immunity would distort competition among Star, SkyTeam and Oneworld," as authorities allow SkyTeam Star antitrust immunity, "leaving Oneworld without any transatlantic integration."