AAI’s Moss in ABA Air & Space Lawyer: “Alliances and Antitrust Immunity: Why Domestic Airline Competition Matters”

April 16, 2019 | Diana L. Moss

Airlines , Exemptions & Immunities , Transportation

Diana Moss published “Alliances and Antitrust Immunity: Why Domestic Airline Competition Matters” in the latest issue of the ABA Air & Space Lawyer (Volume 32, No. 1, 2019). The debate over competition in the U.S. airline industry in recent years has focused largely on developments in domestic airline markets, rang- ing from mergers, access to airports (e.g., slots), alleged anticompetitive coordination on airline capacity and ancillary fees, and concerns over deteriorating quality of air service. Airline competition in international markets, however, also raises concerns and merits scrutiny. Chief among these concerns is the U.S. Department of Transportation’s (DOT’s) policy of granting immunity from U.S. antitrust laws (ATI) for coordination on schedules and fares by members of the three large international airline alliances: Star Alliance, oneworld, and SkyTeam. A second issue of concern is barriers to entry by foreign carriers on international routes serving U.S. destinations. U.S. legacy carriers have opposed such entry while simultaneously expanding their stakes in foreign carriers, perhaps to gain control over decisions to enter U.S. markets.

These developments highlight the growing nexus between international and domestic passenger airline competition issues. The implications of ATI are serious for U.S. consumers who travel on nonstop and connecting international alliance itineraries that involve numerous U.S. gateway airports. Many of these gateways have become significantly more concentrated over the past decade as the result of U.S. airline consolidation, raising concerns about foreclosure of competition by smaller, nonaligned carriers, higher fares, and less choice of carriers for consumers. These changes undercut claims that ATI brings substantial benefits to U.S. consumers in “behind-gateway” and “beyond-gateway” markets served by the alliances. Such markets can be defined in a number of ways, including nonstop or connecting airport or city pairs served by the alliances and alliance networks.

Recently, some of the large U.S. network carriers have escalated their efforts to highlight allegedly “robust” com- petition in U.S. markets. This advocacy comes at a time when a large number of ATI applications are pending at the DOT. These include: American Airlines-Qantas, Delta-WestJet, Hawaiian-Japan Airlines, Delta-Air France KLM-Virgin Atlantic, and American-British Airways-Iberia- Finnair-Aer Lingus. In light of the DOT’s recent rejection of some requests for ATI, it makes sense that U.S. airlines that dominate the three international alliances (Delta, United, and American) would focus on highlighting allegedly competitive conditions in U.S. markets to support their requests for ATI. This article argues that such conditions, which are not as rosy as these airlines claim, are precisely the reason why policy surrounding ATI is ripe for reconsideration. The article provides a brief review of alliance growth over the past 25 years and dominance of U.S. carriers in these alliances, examines the shift in economic evidence regarding the costs and benefits of ATI, and provides empirical analysis that highlights competitive concerns over ATI and its implications for U.S. consumers. The article concludes with policy recommendations.