As the U.S. Department of Transportation continues to examine antitrust immunity applications filed by several airlines, many remain opposed to the formation of tighter airline partnerships or simply unconvinced of the touted benefits.
Yet, oneworld allies American Airlines, British Airways and Iberiaappear confident that their ATI request will be approved in the second half of 2009, positioning them as a third highly integrated grouping centered on the lucrative (though currently ailing) transatlantic market. Similarly, Continental Airlines expects a green light to join various members of an immunized cadre within Star Alliance, which includes United Airlines and Lufthansa.
"Alliances are moving from broadening to deepening and fortifying," said Air Transport Association chief economist John Heimlich, speaking in February at The Masters Program. " 'I want to better leverage my relationship on the cost end and on the marketing end.' " To do it on the marketing end, you typically need antitrust immunity." Immunity then leads to joint sales, product development, distribution and other activities.
According to some critics, it also can hinder open competition. U.S. Rep. James Oberstar (D-Minn.) in February introduced legislation meant to ensure "adequate airline competition between the United States and Europe" by more closely scrutinizing antitrust-immunized alliances. The bill would require the U.S. Government Accountability Office to suggest any necessary changes to DOT's policies in examining immunity requests, and determine "whether DOT should exercise the right it has reserved to amend, modify or revoke any antitrust immunity previously granted." Oberstar's proposal also would "sunset all immunity grants three years after the date of enactment," but allow airlines to reapply. "It is important to assess whether these immunized alliances have resulted in a reduction of competition, an increase in prices or other adverse effects or have used their market power to foreclose rival airlines from competing at alliance-dominated hubs," said Oberstar, who serves as the chairman of the House Transportation and Infrastructure Committee. His proposed legislation was referred to an aviation subcommittee.
Several other lawmakers in December wrote to DOT asking the department to grant ATI "sparingly," to consult the U.S. Department of Justice, and to state competitive concerns about intra-alliance cross-ownership. DOT acting Assistant Secretary for Aviation and International Affairs Susan McDermott in February wrote back, saying, "I can assure you that DOT's decisions will be made in consultation with the Justice Department."
Meanwhile, DOT and the European Commissionin March 2008 said they would cooperate on research into the competitive impact of airline alliances. A report is due in mid-2009.
Opposition to unfettered antitrust immunity has come from the American Society of Travel Agents and the Interactive Travel Services Associations, among others. As they have for months, these two groups continue to urge DOT to "provide a limited carve-out" such that any grant of immunity would "exclude any form of cooperation among the joint applicants regarding the distribution of air travel through any independent travel distributor."
"In light of recent developments resulting from the change of administration and with the introduction of Chairman Oberstar's bill," ITSA and ASTA wrote in a February filing to DOT, "the department should take a fresh look at the pending Star and oneworld applications, and revisit the SkyTeam ATI grant. We urge the department to consider the impacts to travel distribution (and, by extension consumers) resulting from increased collusion between alliance partners in negotiating travel agency contracts."
Rallying Support
In the face of such opposition--as well as multiple formal objections filed by Delta Air Lines--Continental is mustering support from all corners. Adding to the letters of support written by various local, state and federal politicians, a form letter has been sent to DOT by restaurateurs, chambers of commerce, civic entities, corporations, airports and other travel industry constituents. It also has been signed and submitted by travel managers at Baylor College of Medicine, El Paso Corporation and LaRoche, as well as Egencia senior vice president for North America Rob Greyber. The letter suggested Continental's inclusion in the group of immunized Star partners would generate "significant consumer benefits," make passenger transfers between allies more seamless and allow Continental to compete on "a level playing field" with other carriers already in immunized partnerships.
American Airlines, too, has enlisted political allies and support from hundreds of travel agencies, furloughed workers looking for recall, airport authorities and other entities. But its proposed tie-up with BA and Iberia also has critics, including longtime AA-BA foe Richard Branson, founder of Virgin Atlantic.
In many cases, all this alliance jockeying is lost on corporate travel purchasers. In a December 2008 poll of 200 travel buyers conducted by the Institute of Travel Management, no respondent said she or he negotiates airline contracts solely with alliances, as most said they generally negotiate with either individual airlines or with both individual airlines and alliances. ITM suggested the reasons for these findings include prevailing local market conditions and the reality that alliance members "need to be encouraged to participate rather than mandated."
When asked if airline alliances benefit end users, nearly half (47 percent) were not sure. Among the remainder, 25 percent responded, "Yes, they provide all sorts of benefits"--which ITM identified as "slicker transfers, greater lounge use and better check-in"--while 28 percent answered, "No, I have not seen any additional benefits to our travelers or company." ITM remarked, "Quite why a quarter of buyers see these benefits and three-quarters don't is a question that alliances should be asking themselves. Perhaps the responses on the question of recognition of the alliance brands goes some way to answering this question."
On that point, fewer than half of all respondents (42 percent) said they easily could identify each of the major alliances and their members.
That may change if the major airline partnerships succeed in further coordinating sales and operations. According to the airlines, multinational buyers would not only be aware of their partners but also would benefit from simplified corporate contracting with harmonized pricing, unified account management, wider recognition of travelers' elite status and other advantages
Speaking at The Masters, Continental senior vice president Dave Hilfman said, "To have three very strong global alliances, you're going to get great deals."