Airline Alliances

In addition to Open Skies bilateral and multilateral agreements between countries, the United States advocates and approves strategic sharing alliances between U. S. carriers and foreign carriers under “antitrust immunity” agreements with those carri­ers. Under this arrangement, the alliance partners
are free to set prices and to otherwise combine their resources in order to maximize marketing strategies that inure to the benefit of the interna­tional traveling public and to themselves. These alliances have produced significant results.

According to an early report of the DOT,12 implementation of alliances under Open Skies agreements resulted in increases in passenger traf­fic numbers, decreases in prices, and the tapping of entirely new segments of populations that are now availing themselves of international air travel for the first time. Travelers from “behind European gateways” who had never before been serviced in the transatlantic market were of particular note.

The three largest airline alliances are Star Alliance, Sky Team, and One World.13 These Alli­ances combine to carry over 82 percent of transat­lantic traffic. Alliances have extended to the world of cargo airlines as well, including ANA/UPS Alliance, Sky Team Cargo, and WOW Alliance.

Similar to code-sharing arrangements, these alliances provide on the international level many of the benefits of standard code sharing but go a step beyond because of international complications:

1. Joint booking systems. Airlines are able to sell seats through to the passenger’s destina­tion with all the passenger advantages of a seamless journey with ticketing, baggage
handling, connection timing and gate loca­tion, and with the advantage to the airlines of increasing the chance of keeping passen­gers within their network.

2, International flow. The complexities of negotiating bilateral or multilateral agree­ments are avoided or reduced by these com­binations. Airlines are able to use existing national networks on an end-to-end basis.

3. Hub systems. Creation of interlocking hub systems is possible with local feeder routes being provided by existing regional airlines.

The United States Department of Transpor­tation has the statutory authority to approve and immunize from the U. S. antitrust laws agreements relating to international air transportation.14 The DOT has granted over 20 international alliance agreements since the early 1990s, which allows those airlines to collude on prices, schedules, and marketing. Exemptions are granted provided that “the exemption is required by the public interest.”15 Exemptions granted by the DOT, therefore, are based on considerations other than fare or price.

The DOT states the U. S. foreign policy goals are a key element of these public benefits. Rec­ognized as a primary policy goal of the country is the “Open Skies” initiative announced in the early 1990s to complement and extend the effects of the economic deregulation of domestic airlines. In approving immunizations of airlines within alliances, the DOT highlights the importance of strong competition between the alliances, which can better discipline the fares and services offered to consumers. The correlation between the “Open Skies” announcement and the immunization of airline alliances can be easily seen.

Yet, the DOT has found from recent evidence that alliances do, in fact, decrease competition over the North Atlantic, resulting in higher fares for consumers. As airline practices are modified and as new data reveal the results of regulatory practices, the regulators at the DOT will be called upon, in spite of Open Skies agreements, to determine how much competition will need to be preserved in international aviation. The DOT is telegraphing that additional calls by airlines to decrease compe­tition will be harder to sell in the future.

Endnotes

1. The Economic Benefits of Air Transport, 2000 edition, The Air Transport Action Group, 33 Route de I’Aeroport, P.0. Box 49, 1215 Geneva 15, Switzerland.

2. In 2007, foreign ownership of U. S. airline companies is permitted to be in excess of 50 percent of voting and non­voting stock, but only 25 percent of voting shares.

3. The first proposal for an Open Skies agreement with the European Union, which contained liberalization of for­eign ownership rules, was voted down in the Congress even though it was supported by the Administration.

4. The countries sued were Austria, Belgium, Denmark, Fin­land, Luxembourg, and Sweden. Bruce Barnard, Kinnock Perseveres in Fight for EU-Wide Air Talks with U. S., J. Com., June 20, 1995, at 2B.

5. Dempsey, Paul, Competition in the Air: European Union Regulation of Commercial Aviation, Journal of Air Law and Commerce, Summer 2001.

6. The original Bermuda Agreement was signed in 1946.

7. Slater, Rodney, Testimony before the Aviation Subcommit­tee, U. S. House of Representatives, February 15, 2000.

8. United’s transatlantic routes to Heathrow dated back to the days when Pan American was the only international U. S. carrier. These routes were sold by Pan American to United in 1989, just before Pan Am’s liquidation.

9. Ownership of U. S. airlines is limited to 25 percent of voting stock in the airline. Cabotage, the prohibition for foreign airlines to carry revenue traffic between two U. S. cities, was also preserved.

10. 49 U. S.C. section 40118.

11. The Economic Impact of Air Service Liberalization, see the IATA website.

12. U. S. Department of Transportation, International Avia­tion Developments—Global Deregulation Takes Off (First Report) December 1999; U. S. Department of Transpor­tation, International Aviation Developments, Second Report—Transatlantic Deregulation—The Alliance Network Effect, October 2000.

13. Members of these three Alliances are as follows: Star Alliance—Adria Airways, Air Canada, Air New Zealand, All Nippon Airlines, Asiana, Austrian, Bluel, British Midland International, Croatia Airlines, LOT Polish, Lufthansa, SAS Scandinavian, Singapore, South African, Thai Airways, Swiss, ТА Portugal, Spanair, United, US Airways, Varig; OneWorld Alliance—Aer Lingus, American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, LAN Airlines, Qantas; SkyTeam Alliance—Air France-KLM, Delta Airlines, Northwest, Conti­nental, Korean Air, Alitalia, Aeroflot, Aeromexico, CSA Czech.

14. 49 U. S.C. sections 41308-41309.

15. 49 U. S.C. section 41308 (b).

«The Earth is the cradle of humanity, but mankind cannot stay in the cradle forever, w

Konstantin Tsiolkovsky

hirty-eight years before the Wright brothers’ first flight, and two years before even the transcontinental railroad was completed, wild fantasies of space exploits, a genre later to be known as “science fiction,” hit the presses. In Jules Verne’s From Earth to the Moon, published in 1865, three members of an American gun club travel to the moon aboard a spaceship launched from a columbiad1 located in Florida. The story bears an uncanny parallel to the U. S. Apollo program that operated from Cape Canaveral, Florida, to the moon 100 years later.

Between Jules Verne and Apollo, however, there was much work to be done.