Summary
Antitrust immunity for airline alliance partners will become more difficult with DOJ and Obama administration opposition These arrangements and alliances have been quite profitable, especially for Delta (and NW) who have existing relationships with Air France-KLM Just as alliances are getting stronger, the US and EU appear ready to throw cold water on future growth
Analysis
The objection to widespread antitrust immunity for United and Continental indicates a change in regulatory policy by the Obama administration, with likely more scrutiny to come. Legislation has been introduced by congressman Oberstar, a democrat and long-time leader in aviation matters, to review and possibly dismantle airline alliances over the next three years.
While dismantling alliances may be an extreme, the regulatory environment appears to be changing, and will make future alliances more difficult. The Department of Justice believes the domestic portion of the Continental-United alliance participation to be anti-competitive, and have asked that antitrust immunity be scaled back.
It is now likely that the DOJ may object to the American-British Airways application, given the concentration of service on routes from the Northeast, particularly Boston and New York where this combination would dominate the marketplace.
Looming in the background are labor unions objecting to alliances, citing reduction in US carriers growth and more code-share service being offered by foreign carriers - and thus an outsourcing of jobs. The new administration appears to be listening to one of its political bases - organized labor.
The implications are quite significant --- as these antitrust exemptions generate million of dollars in additional revenues for airlines -- often on the order of $50-$100 million annually. Delta has them in place. American does not. Continental and United may lose some of their grant of immunity if the DOJ recommendations are taken into consideration by DOT. These actions can provide, or deny, significant competitive advantages.
Bottom Line:
As indicated by the legislation, airline alliances and their anti-trust immunity will be coming under increased scrutiny. The landscape is beginning to change, and those who have alliances in place may have a significant advantage over those still trying to implement them when political receptivity has turned negative.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
