DENVER -- In December 2016, Delta and Aeromexico wrote an impassioned critique of what they viewed as the overly harsh terms set by the Department of Transportation as it approved an antitrust-immune joint venture between the carriers.

"In markets with robust competition, the public interest is not served by the government favoring a particular type of competitor, imposing a redistribution of assets and deciding who should compete where," attorneys for the two companies wrote at the time.

Now, as Delta vies for approvals to launch a joint venture with Canada's WestJet and to merge the carrier's separate joint ventures with Virgin Atlantic and Air France/KLM into a three-way partnership, Delta chief legal officer Peter Carter remains passionate about the value joint ventures offer travelers, even as some in the airline industry expect regulators to view them with increasing circumspection.

"What is a joint venture?" Carter asked rhetorically in a presentation last month at the CAPA Centre for Aviation Americas Summit here. "You have something, and I have something, and we are able to do more things together."

The first airline joint venture to win antitrust immunity was the Northwest-KLM partnership in 1993. Since then, Carter asserted, joint ventures have made worldwide travel quicker and easier, even as costs have dropped 10% compared with 20 years ago.

"That's truly amazing," he said.

As an instrument, antitrust-immune partnerships benefit from regulatory approval that allows airlines to jointly market, schedule and sell flights. The partnerships also effectively give carriers a much larger fleet, which provides added agility in route scheduling. 

In the past two decades, airlines have increasingly used joint ventures as a workaround to rules that prevent foreign ownership of carriers.

At present, U.S. airlines are part of 10 active joint ventures, five of which involve Delta. U.S. carriers have also applied for five additional joint ventures, not counting Delta's application to merge its alliances with Virgin Atlantic and Air France/KLM. 

Joint ventures are especially powerful over the Atlantic, where the alliance networks involving United, Delta and American control 72% of the market, CAPA Centre for Aviation CEO Peter Harbison said in Denver. 

But Harbison said that future DOT joint venture approvals are likely to come with stronger stipulations. While airlines can expect shorter approval periods for antitrust immunity, they are also expected to face more oversight as to the competitive impact of the partnerships and more circumspection from regulators related to exclusivity clauses. 

Indeed, Harbison noted, U.S. regulators have already begun taking such actions. The DOT's approval of the Delta-Korean Air joint venture came with the requirement that the carriers remove clauses in the agreement that would have prevented them from entering into cooperation agreements with other airlines in the U.S.-Asia market.

Delta and Aeromexico's strong reaction to the terms of the DOT's approval of their joint venture in 2016 related to the short, five-year term of the immunity grant as well as to the DOT's requirement that the two carriers surrender 24 valuable landing and departure slots at Mexico City's Benito Juarez Airport to low-cost competitors in order to assure market access.

More ominously for airlines seeking antitrust-immune alliances, the DOT blocked an American-Qantas joint venture application entirely in late 2016, citing concerns about dominance in the U.S.-Asia Pacific market.

In his presentation, Carter emphasized the value of joint ventures to connectivity and said that in integrating the complementary networks of Delta and Air France/KLM, the companies are able to connect customers to 28,000 city pairs that neither airline could serve on its own. 

Airline regulators have generally taken the position that the merging of complementary networks can enhance customer choice. That can especially be the case as airlines feed flyers through and beyond their hubs on interline itineraries. 

For example, the United-Lufthansa joint venture will fly a combined three flights per day between Denver and Frankfurt or Munich beginning in May. But about 90% of those travelers will connect to or from other airports, said Laura Jackson, Denver Airport's vice president of air service development. 

Conversely, out of concern that the partners will reduce service, regulators have looked askance when joint ventures tie up overlapping networks. For example, United and Air Canada didn't go through with a transborder joint venture early this decade after the Canada Competition Bureau forbade joint operations on 14 high-demand routes that the bureau contended would see diminished competition as a result of the partnership. 

Academic researchers have also found that joint ventures can present entry barriers by increasing the scale needed for a market entrant to compete.


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