United ( UAUA) and Continental ( CAL) have won approval of their bid for Continental to join nine other carriers in a global alliance immunized against antitrust enforcement, meaning the carriers can jointly discuss fares and scheduling on a variety of international routes.Approval came Friday in a Transportation Department ruling that largely disregards a Justice Department analysis that concluded the protections the two carriers sought were too broad, although DOT made some adjustments in the tentative approval it announced in April. Chiefly, it delayed antitrust immunity on several routes, including two to Beijing, until a third carrier besides Continental and United begins U.S.-Beijing service.
The Justice Department had objected to the request that Continental receive "global immunity," which it viewed as "unprecedented in scope and breadth, sanctioning collusion by United and Continental on all international service, eliminating or significantly reducing competition." It said fares would likely increase by 15% on some routes and advocates that the DOT grant more limited immunity. In particular, the Justice Department said United and Continental are the only two U.S. carriers offering nonstop service to Beijing (Air China also offers nonstop service). They are also the only two U.S. carriers flying nonstop to Hong Kong, but foreign carriers control 72% of that nonstop market. On Friday, the DOT said that after reviewing the objections, it found "the purported risks to competition from granting unrestricted 'global' scope are insignificant and unsubstantiated" and that "DOJ's prediction of adverse price effects is flawed and contradicted by previous empirical analysis." It said little change is likely in the U.S. Beijing and U.S.-Hong Kong markets. However, the department added new conditions requiring that the joint venture be implemented within 18 months, bringing benefits to passengers quickly, and that certain routes including the Beijing routes, four routes between Newark and Europe, and several routes to Canada be exempted from the immunity. Currently, Delta ( DAL), Northwest, AirFrance and KLM also have an immunized alliance for transatlantic flights, which benefits passengers by providing more frequent flights to hubs in Amsterdam and Paris, where faster connections are available. Aviation consultant Mike Boyd says the advent of a Democratic administration may have prompted a more critical view of alliances in some quarters. "Up to now, alliances up to now have been obscenely beneficial to the consumer," Boyd says. "You cannot argue that. They mean more choices and faster travel, like being able to fly Delta to Paris and then connect, seamlessly, to Air France to go to Marseille. But now we have a new DOJ. The former DOJ would have approved any alliance of any kind. Now, it is being a lot more doctrinaire."
Rep. James Oberstar, (D.-Minn.) and chairman of the House Transportation Committee, also a strong opponent of alliances, recently introduced legislation that would require a study of their impact, potentially leading to their dissolution. On Thursday, Oberstar released a letter backing the Justice Department objections, arguing that "the granting of antitrust immunity is a de facto merger of these airlines over the routes involved (and) when immunity is granted to an alliance, there is a substantial decline in competition." Yet, the case is often made that if airlines are monopolistic fare-gougers, they are not so good at it. The U.S. airline industry has losses (excluding one-time accounting adjustments) of $34 billion since 2000, and will likely lose money this year as well. Since 1978, while the consumer price index has risen by 230%, the cost of domestic air travel has increased by just 63%, according to the Air Transport Association. Bill Swelbar, a research engineer in MIT's International Center for Air Transportation, says the clearly evidenced value of alliances should overwhelm any objections. "Everything about opposing alliances takes me back to the law of unintended consequences," Swelbar says. "Alliances deliver to the consumer a much more convenient travel experience, and also create jobs: At any of the big airlines, there are 50 to 80 domestic airplanes that feed the international flights (enabled by) alliances. Yet some people want to put the brakes on them."