BRUSSELS — Cooperation between airlines might be good for them, and perhaps for elite members of their frequent-flier programs. But is it good for the rest of us?
The announcement this week that the European Union’s antitrust watchdogs have started proceedings against members of two of the world’s largest airline alliances shows that regulators on both sides of the Atlantic are asking that question.
The European Commission’s decision to investigate European and North American members of the Star and Oneworld alliances follows the introduction in February of a bill in the U.S. Congress calling for greater scrutiny of Oneworld, Star and SkyTeam, the trio of alliances that dominate trans-Atlantic routes.
“We think that there may be breaches of the antitrust rules because of the very extensive levels of cooperation on transatlantic routes between these airlines,” a commission spokesman, Jonathan Todd, told reporters Monday.
Although there was no coordination between Washington and Brussels, Todd’s words echo the concerns of U.S. Congressman Jim Oberstar, who heads the Transportation and Infrastructure Committee in the House of Representatives.
“If these immunized mega-alliances are allowed to proceed unchecked, the end result may be trading government control in the public interest for private monopoly control in the interests of the industry,” the Minnesota Democrat said in a statement when he introduced the bill in February.
Together, the three alliances control 87 percent of traffic between Europe and the United States, Oberstar said.
The attack from both sides of the Atlantic risks taking the steam out of what had been seen as a cruise toward ever-closer airline cooperation within alliances that were expanding both in geographic range and market power.
“It’s quite problematic for the airlines. If you go back six months, the alliances seemed to be on an inevitable continuum, that would develop and deepen until sometime down the line you might see some king of mega-merger,” said Nick Cunningham, aviation analyst at Evolution Securities.
“Recently … there’s been more significant opposition evident, particularly in Congress,” he said in a telephone interview from London. “The Commission has added to that sense that maybe the alliance concept is going to be a lot more difficult to achieve.”
Authorities had generally looked benignly on airline alliances, apparently swayed by arguments that the benefits to passengers that come from shared flight codes, coordinated frequent flier programs and combined lounge access generally outweigh competition worries.
Just this month, the U.S. Department of Transport granted tentative antitrust immunity to Continental Airlines joining a joint-venture with Star Alliance partners Lufthansa, Air Canada and United Airlines. However, such moves by the airlines to take their cooperation to higher levels are raising alarms.
The DOT is seeking more information about a proposed closer link between Oneworld members including British Airways, American Airlines and Spain’s Iberia. BA’s preeminent position at Heathrow, Europe’s busiest airport, has raised particular concerns. Back in 2002, an attempt to link BA and American was thwarted by DOT demands for concessions at Heathrow.
The EU antitrust office says the level of collaboration among the Star Alliance quartet and the three Oneworld members is “far more extensive” than is usual, involving plans to “jointly manage schedules, capacity, pricing and revenue management.”
The airlines have denied infringing the rules and say they will cooperate with the probe. However, critics contend that the alliances could be circumventing merger controls and rules limiting foreign investment in airlines.
“The concern is that you end up with some kind of complex monopoly,” Cunningham said. “If you’re going to have a merger then it has to got through the proper merger procedures. Merger by stealth is not acceptable.”
U.S. legislation prevents foreign investors from taking more than a 25 percent stake in American carriers, while European rules limit non-EU investment to 49 percent of airlines based within the 27-nation bloc.
European officials are hoping negotiations due to resume in June will lead to a relaxation of the foreign investment rules and allow European airlines to operate domestic routes in the United States by broadening the 2007 “Open Skies” agreement, which liberalized trans-Atlantic aviation markets.
Todd, the EU spokesman, said the Open Sky principles would be undermined if the alliances were permitted to stifle competition. “The whole point of the Open Skies is to increase competition and if you allow airlines to fix prices then potentially you’re neutralizing those benefits,” he told GlobalPost.
Although there is no deadline for the EU probe, such investigations generally last at least two years, although the airlines could cut it short with concessions to allay the antitrust concerns.
Meanwhile, travelers are unlikely to notice any immediate changes. The economic recession has driven ticket prices down despite the fears of price-fixing.
“The airlines are in such distress, there is so much over-capacity around and therefore there is such cheap pricing available that it’s difficult to establish there is very much price-fixing going on per se,” Cunningham said.
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