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DoT global alliances and the demise of the US airline industry

On Friday, 10 Jul-09, the US Department of Transportation issued a ruling granting antitrust immunity for Continental Airlines’ membership of the Star Alliance. Unlike the negative approach of the Department of Justice in its submissions on the proposal, the DoT considered that “The venture, as well as the broader alliance, will create substantial new service options and fare benefits for consumers.” While it may seem a mere administrative decision in a turbulent world, the decision takes on much greater importance, as the first pointer of policy directions under the Obama administration…

On Friday, 10 Jul-09, the US Department of Transportation issued a ruling granting antitrust immunity for Continental Airlines’ membership of the Star Alliance. Unlike the negative approach of the Department of Justice in its submissions on the proposal, the DoT considered that “The venture, as well as the broader alliance, will create substantial new service options and fare benefits for consumers.”

While it may seem a mere administrative decision in a turbulent world, the decision takes on much greater importance, as the first pointer of policy directions under the Obama administration. Many aviation authorities around the world will breath a sigh of relief at this decision, because momentum had appeared to be growing for US policy to u-turn and withdraw into some good old fashioned protectionism.

Continental will now be able to cooperate as a full member of the Star Alliance, along with the other North Atlantic members, Air Canada, Austrian, bmi, LOT, Lufthansa, SAS, Swiss, TAP, and United Airlines (there are some minor exclusions).

The powerful DoJ had previously found considerable anti-competitive elements in the proposed agreement and recommended that limits be imposed on the degree to which the carrier could benefit from immunity. But the final decision, backed by the Administration, lies with the DoT.

A diminishing global force
There is one very important point the Department of Justice overlooked in reaching its conclusion on Continental Airlines’ membership: the US is a rapidly diminishing force in global aviation. (This omission of scope is partly due to the more narrow terms of reference that the DoJ must follow, but the Department has always tended to be more precious about any perception of reduced competition at the ground level, regardless of the upside.)

Participation in global alliances is perhaps in reality the last hope US carriers have to re-establish their position, or at least to retain a substantial role in world markets in the future.

As other airlines in Asia and the Middle East rapidly expand, US airlines are being left behind. The days have gone when they dominated global routes. And – contrary to the often retrogressive views of would-be protectionists – this is not because foreign airlines have plundered the US market.

It is simply because the US airlines, bedded deeply in and preoccupied with inward looking competition in the domestic market, are so cash starved that they have become unable to acquire the aircraft necessary to make them serious competitors on long haul international routes. At the same time their domestic-driven service levels have fallen well behind the new benchmarks being set by the new airlines.

A positive indicator for the liberalisation outlook
So, as the US government considers a number of critical liberalisation measures – including whether to approve the oneworld immunity application of British Airways and American Airlines (and Iberia) and the preparations for the next round of open skies talks with the Europeans later this year, this decision comes as a welcome breath of fresh air. SkyTeam, too, will welcome the opportunity possibly to add further members to its existing immunity.

One of the concerns of the DoT, had the immunity not been granted, was of the confusing signs being sent to foreign governments: “were we to suddenly change our antitrust immunity and public interest approach, as DOJ suggests, the credibility of the U.S. Government with its international aviation partners would be significantly compromised and our ability not only to reach new Open-Skies agreements but also to maintain those agreements that we have already achieved would be undermined.”

This clear expression of the importance of international comity will be most welcome, across Europe and throughout the world.

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Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.

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