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
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
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
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
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