Today, AAI issued the white paper "Revisiting Antitrust Immunity for International Airline Alliances." The paper makes the case for why the U.S. Department of Transportation (DOT) should revisit its policy surrounding grants of antitrust immunity for the international airline alliances. It describes the implications of immunized alliances for domestic competition and consumers, particularly in light of a decade of consolidation among U.S. alliance carriers.
The debate over competition in the U.S. airline industry has focused to date on high profile developments in domestic airline markets. These issues include mergers between domestic legacy (i.e., network) and low cost carriers; concerns over market entry such as access to takeoff and landing slots at congested airports; and alleged anticompetitive coordination on airline capacity and ancillary fees. Concerns over dwindling choice and quality of air service have also come sharply into focus in recent years. In an industry that could not be more consumer-facing, these concerns should be a priority for competition enforcers, policymakers, and legislators.
Other important issues have recently worked their way onto the domestic aviation radar screen. One is U.S. Department of Transportation policy toward granting antitrust immunity (ATI) for the international airline alliances. The large U.S. network carriers dominate the three large alliances – Star, SkyTeam, and oneworld. The alliance engage in joint-venture type coordination on schedules and fares and share resulting revenues and profits. DOT policy toward ATI appears to be shifting as competitive concerns over immunizing coordinated conduct escalate and claims of public benefits are viewed more skeptically.
A related issue is entry by non-allied foreign carriers on international routes that serve U.S. destinations. These include Norwegian Air UK Limited and the Gulf Carriers (Qatar, Emirates, and Etihad). The large U.S. legacy carriers have vigorously opposed entry into U.S. markets by these carriers. In parallel, domestic airlines are also expanding their stakes in foreign carriers. This is likely motivated by expansion opportunities abroad but also by gaining strategic control over foreign airlines’ decisions regarding expansion into U.S. markets.
The foregoing developments highlight the growing nexus between international developments and domestic passenger aviation competition. This white paper examines the implications of this issue for U.S. consumers. It focuses particularly on the implications of antitrust immunity for U.S. consumers that travel on nonstop and connecting international itineraries that utilize U.S. alliance gateways (i.e., hubs). Many of these gateways have become significantly more concentrated as the result of sweeping U.S. airline consolidation over the past decade, raising concerns about foreclosure of smaller, non-allied carriers and higher fares, less choice in carriers, and lower quality for consumers. Such changes undercut claims that immunity can bring substantial benefits to consumers in nonstop and in the behind-the-gateway and beyond-the-gateway markets served by the alliances.
The paper proceeds in several parts. It begins with a review of alliance growth over the past 25 years, the growing dominance of U.S. carriers in the alliances, and the accumulation of immunity over time. The analysis then moves to discuss the policy concerns that generally surround antitrust immunity and exemptions, how DOT handles immunity, and the shift in economic evidence regarding the costs and benefits of ATI. The last section addresses growing competitive concerns over immunity for U.S. consumers. It provides a two-pronged analysis that provides some insight into why immunity policy should consider the fundamental changes in U.S. aviation markets in order to protect U.S. consumers. The white paper concludes with suggestions and recommendations that might guide future policy.