The Department of Justice slammed the Department of Transportation this week for proposing to grant global antitrust immunity to nine members of the Star Alliance and Continental Airlines, which is scheduled to join Star in October when it leaves the SkyTeam alliance.
The immunity, as proposed, would raise fares and curtail competition, the DOJ contended. It added that there was little evidence that Star carriers would be able to deliver on promised passenger benefits.
The DOT should "tailor" any antitrust immunity approval to a limited number of transatlantic routes, sad the DOJ.
The DOJ has no authority to block a DOT immunity decision, and the carriers said they expect their request to be approved.
Analysts and government watchers, however, predicted the DOT would revise its plan to address the Justice's concerns. They also said the DOJ's outspoken criticism signals a shift by the Obama administration from the alliance-friendly Bush years to a much more circumspect environment.
In a recent speech, Christine Varney, the new head of the Justice Department’s antitrust division, said she would ensure "vigorous" antitrust law enforcement. The airline groups also face legislation proposed by U.S. Rep. James Oberstar (D-Minn.) that would sunset existing alliances and put all requests under much greater scrutiny.
The most immediate targets would be the pending request by Star and another filed by American and British Airways under the auspices of the Oneworld alliance.
In the matter of Star and Continental, the DOT acknowledged potential competitive problems but ultimately agreed with the applicants that they were outweighed by the improved efficiencies and passenger benefits that would result from closer cooperation among the carriers.
But the DOJ, in its rebuttal, said the opposite was true.
"The competitive harm likely to be suffered by consumers in these transborder and transatlantic markets is not offset by public benefits," the DOJ said.
Transatlantic markets that would lose their competitive edge if the airlines get immunity are New York flights to and from Stockholm, Sweden; Copenhagen, Denmark; Geneva, Switzerland; and Lisbon, Portugal, the DOJ said. Fares will jump 6.6% to 15% on those and other key routes, the DOJ predicted.
Current Star member United and future member Continental are the third- and fourth-largest domestic carriers by traffic, respectively.
"A DOT grant of immunity for two U.S. carriers to coordinate their international operations outside of an explicit joint venture with foreign carriers would be unprecedented," the DOJ said.
While the Star plan calls for a firewall of sorts between domestic and international segments, the DOJ said, "No guidelines can completely eliminate the risk of domestic spillover."
Immunity permits carriers to agree on prices and capacity and coordinate their marketing; in some cases, alliance partners pool revenue and share profits from routes where they both operate.
In its comments, Justice reminded the DOT that the legal test for antitrust immunity requires the applicant airlines to demonstrate that the immunity is necessary to achieve consumer benefits that cannot be achieved in any other way. It said the carriers didn’t meet that test.
According to the DOJ, the Star carriers failed to "describe which specific ‘important’ consumer benefits will be lost if DOT does not grant the requested immunity." It also said the carriers did not "make any attempt to quantify" the scope of such benefits.
The airlines’ own documents, the DOJ said, "indicate that cost savings of any significance are unlikely."
The DOJ further said the Star antitrust immunity plan "is devoid of details as to where these additional joint ventures will operate, who the parties to the ventures will be, what form their integration will take or when the ventures will be implemented."
Given that, the DOJ said, "a public interest determination cannot be based on entirely hypothetical agreements."