Bill would give air alliances a tough path to immunity

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Airlines would find it much more difficult to obtain, and retain, immunity status for global alliance partnerships under legislation introduced by Rep. James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee.

Oberstar says he’s worried that alliance immunity hurts competition, and he wants the airlines to demonstrate more clearly how immunity benefits consumers. His bill would end all antitrust immunity for airline alliances in three years and require the carriers to refile.

In the meantime, the bill would require the Government Accountability Office to scrutinize alliances that already have immunity and evaluate the consumer benefits and impact on competition, so that the Department of Transportation (DOT) can develop better guidelines.

JamesOBERSTARAirlines have remained mum about specifics of the proposal, but carrier executives generally maintain that they need antitrust immunity so that alliance partners can coordinate schedules and prices, to operate as if they were one carrier or a joint venture.

Cross-border mergers, they point out, are simply not possible under existing law.

Aviation experts have been mixed in their reactions to the Oberstar proposal.

"Oberstar’s bill is misguided," said Darin Lee, a principal of consultant group LECG. "His general conclusion is that because alliances have grown their share of passengers to the 80% range in some market segments, that by definition, this must be a bad thing."

Vaughn Cordle of AirlineForecasts, on the other hand, said "Oberstar is heading on the right track." As for the public benefits of alliances, Cordle said, "The primary benefit of alliances is to constrain capacity," which benefits the carriers.

That is part of Oberstar’s concern, as well. "In essence, the granting of antitrust immunity is a de facto merger of these airlines over the routes involved," he said.

According to Oberstar, the Star, SkyTeam and Oneworld alliances account for almost 80% of the total world airline capacity, 78% of world revenue passenger kilometers and 73% of passengers carried, plus 87% of U.S.-Europe traffic.

"Evidence also suggests that when immunity is granted to an alliance, there is a decline in competition from carriers not in the alliance," said Oberstar.

For example, he said, in 1990 the New York JFK-Paris market had six competing airlines. Today there are only three, and Air France and Delta control about 75% of the market share, he said.

"What he fails to mention is that of the six carriers, you had Egyptair and Pakistan International Air with two flights per week, TWA two per day and Pan Am one per day," Lee said. "Pan Am dropped out after it went bankrupt in the early 1990s, so alliances are hardly to blame for that, and TWA of course also was a non-viable airline.

"Among the big two carriers that served the market then, Air France has increased its flights from three per day to six per day, American from one per day to two per day," he said. "Continental offered one per day from Newark to Paris in 1990, but now it offers three."

Lee contended that passengers are better off with today’s arrangement, particularly with alliance partners offering "convenient connections on both ends."

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