Justice Slams DOT Star ATI Approval
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By Darren Shannon
The U.S. Justice Dept.’s private scorn of Star Alliance’s attempt to expand its antitrust immunity has gone public with the issue of a filing late June 26 that questioned the validity of many of the alliance’s arguments, warns of significant fare increases, and seeks to impose stringent limitations on proposed collaboration in Latin America and the Pacific .
Justice also dismissed Star’s claims that it needs Continental Airlines’ inclusion in its current immunization to compete with the Delta and Air France-anchored SkyTeam alliance, and pointedly noted that approval of Star’s application could dramatically affect competition both at home and on cross-border services to Canada.
Star last year asked DOT to add Continental to its current immunization and approval to form a stronger joint venture between Air Canada, Lufthansa, United and Continental. This plan, with a few adaptations, was tentatively approved in April by the U.S. Transportation Dept.
Despite the seemingly painless approval, it soon became clear that there was intra-departmental discord between DOT and Justice. Details of this disagreement began to surface in early May when DOT failed to issue a final approval as expected, and just two weeks ago U.S. Attorney General Eric Holder in a Senate hearing said his department wanted greater input on the deal. The new head of DOJ’s antitrust unit, Christine Varney, in her first speech as assistant attorney general said she would oversee the “vigorous” enforcement on antitrust law.
Now it appears DOJ wants more than input; it is calling for a wholesale revision of Star’s application.
The foremost concern for Justice is Star’s request for global immunization for its joint venture, notably for partnerships in Asia and Latin America. This “unprecedented” request, according to DOJ, contradicts U.S. government policy and must therefore be dismissed. “Granting immunity for Continental to coordinate with Star ATI Alliance members on U.S. to Latin American or Pacific routes is not likely to result in further liberalization discussions between the U.S. and countries with which we have not yet negotiated open skies, such as China or Brazil,” said Justice in its filing.
“Therefore, an expansion of immunity offers no open skies benefits for U.S. consumers.”
DOJ also noted that the alliance’s international request was made “despite the lack of any concrete plans” and that the one example of international collaboration – the consolidation of Star facilities at Beijing and Tokyo airports – requires no immunization or membership in Star’sjoint venture.
Justice also noted the dominance of Continental and United on U.S.-China routes, although the department does not mention that other U.S. carriers have postponed their own Chinese services and that Delta can operate flights to China from its hub in Tokyo.
Star’s potential dominance on key transatlantic hubs also worries Justice. In its attack, the department said Transportation’s decision to revoke controls on key United and Lufthansa routes would eliminate competition on flights from Chicago and Washington, D.C., to Frankfurt, while the introduction of Continental to Star’s ATI would increase fares from New York to Copenhagen, Geneva, Lisbon, Stockholm and Zurich.
Competition on services between the U.S. and Canadian could also suffer, while the potential for the U.S. domestic market to be adversely affected by the combined strength on Continental and United – theoretically the largest carrier in the world – calls for only one solution, according to Justice: absolutely no inclusion in the antitrust immunization.
Justice also warns that fares will increase by 6.6% to 15% on key routes if DOT ignores this advice.
Star’s application – which forms part of a broader plan to introduce Continental to the alliance in late October – is also criticized by Justice for failing to provide a compelling argument to expand its current immunization, which includes nine members. “The applicants present no evidence…that customers will receive quantitatively or qualitatively different service if Continental receives antitrust immunity to coordinate with the Star ATI members compared to what would be provided if Continental merely interacted with the level of cooperation expected of any member of the broader, non-immunized Star Alliance,” said DOJ.
But this was just the beginning of DOJ’s attack. “The applicants do not describe which specific “important” consumer benefits will be lost if DOT does not grant the requested immunity. Nor do the applicants make any attempt to quantify how much smaller the benefits enuring to the traveling public would be if Continental merely engaged with the Star ATI members, without antitrust immunity, in such standard alliance cooperation practices as code sharing, through-ticketing, frequent flyer reciprocity and lounge sharing - in short, the type of interaction Continental currently has with immunized SkyTeam members, or that US Airways has with the Star ATI members, including United,” added Justice.
The department also questioned Star’s assertion that it must achieve parity with the antitrust immunization granted to SkyTeam’s Delta and Air France-KLM (and the former Northwest Airlines). “[A]chieving balance in the market success of differing alliances is not a legitimate goal of sound competition policy,” noted DOJ, adding, “Alliances should compete against each other, and the market should determine the outcome of that competition.”
Photo: Star Alliance
