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In giving its tentative approval of two transpacific antitrust immunity applications, the U.S. Department of Transportation cited the need to maintain healthy competition among the world's three leading airline alliances. Star Alliance North American anchor United Airlines, its merger partner Continental Airlines and Japan's ANA, and separately oneworld allies American Airlines and Japan Airlines, plan to establish integrated partnerships including joint sales, pricing, scheduling and revenue sharing. Those partnerships would be similar to the American Airlines-British Airways-Iberia joint venture, which officially launched last week.
Joint ventures have become a favored option among allies, enabling a level of collaboration not possible within traditional alliance marketing frameworks. "We are in fact seeing these integrated joint ventures developing at a faster rate than we would have imagined only a few years ago," said SkyTeam managing director Marie-Joseph Malé, speaking last week in Berlin during an Association of Corporate Travel Executives conference. "There is an extension; people outside of the JV members benefit from what has been learned in the JV."
Noting that alliances currently represent "approximately 60 percent of the world's commercial air traffic," Malé added that "there is some evidence that competition is shifting from airlines to alliances as they are becoming structurally important."
DOT agreed, and concluded that "inter-alliance competition would likely be strengthened in U.S.-Asia and U.S.-Japan markets as a result of immunizing the Star applicantsand the oneworld applicants."
SkyTeam partners "Delta and Korean Air currently operate with immunity, have a strategically placed immunized connecting hub in Seoul and have a sizable presence in the U.S.-Asia market," DOT continued. "Without immunity, the Star applicants and oneworld applicants would likely not be able to match the size and scope of SkyTeam in the transpacific market. Approval of the ATI applications would establish Star as a second leading alliance, along with SkyTeam, in the U.S.-Asia market. In addition, oneworld would become a more viable third competitor, while independent airlines would continue to hold a competitively significant stake in the market."
DOT closely examined six city pairs in the U.S.-Japan market, where more than one ally currently offers nonstop service and where "the resulting increased concentration could, in theory, give one airline or alliance an increased ability to exercise market power to increase fares to supra-competitive levels." Those markets are Tokyo to Chicago, Honolulu, Los Angeles, New York and San Francisco. DOT determined in all cases that "market forces are likely to address potential competitive effects."
On the Los Angeles-Tokyo route, four competitors would remain (including each of the three primary immunized alliances and Singapore Airlines, a Star member with no antitrust immunity), none with a share greater than 50 percent, which would be "sufficient to discipline fares in the market," according to DOT. The same would be true in New York, with the large market split among the three immunized alliances. On the San Francisco-Tokyo route, United and ANA together would claim a larger share of the nonstop market (which links two Star hubs) but "should [they] attempt to increase prices, we believe that passengers will have ample opportunity and incentive to shift to competing services," DOT concluded. "Also, oneworld carrier JAL will initiate the only nonstop service between San Francisco and [Tokyo] Haneda, likely an effective means of competing in the competitor's hub-to-hub market."
DOT also suggested that immunized partners operating in the Chicago-Tokyo route--where a duopoly would form after the effective loss of two competitors--"would face limited incentives to raise fares above competitive levels because of current connecting traffic volumes." Similarly, though the nonstop Washington-Tokyo market would be left with just one carrier, DOT wrote that the route's role as "a trunk route for connecting traffic" would dissuade any one competitor from cutting capacity or raising fares.
DOT's tentative approval is based on the expectation that the United States and Japan would finalize a new, liberalized air transport deal, preliminarily agreed upon in December 2009.
DOT through 27 October will accept public comments on its tentative decisions.
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