ATA writes EU Commissioner Neelie Kroes urging DG-Competition to approve the three international airline alliances: oneworld, SkyTeam and Star

​October 30, 2009 

Ms. Neelie Kroes
European Commissioner for Competition
European Commission
DG Competition
B-1049 Brussels
Belgium

Re: International Airline Alliance Investigations

Dear Commissioner Kroes:

The Air Transport Association of America (ATA) is, of course, aware of the antitrust investigations of the three international airline alliances – oneworld, Star and SkyTeam. On behalf of all of our member airlines,1 we respectfully urge DG Competition to find the underlying alliance agreements to be compatible with European rules on restrictive business practices and not anticompetitive. As discussed below, the alliances provide tremendous consumer benefits and value, provide efficiencies that allow the airlines to expand consumer choice and employment, and contribute to a trans-Atlantic market characterized by vigorous competition among airlines and alliances. Indeed, a trans-Atlantic market with three alliances enhances competition and is pro-competitive, and thus pro-consumer.

Alliances Provide Substantial Consumer Benefits

The close coordination and integration of alliance partners’ commercial decision-making is critical to realizing the extensive consumer benefits these alliances offer. Metal neutrality enables alliance partners to align their economic incentives in order to coordinate fares, schedules and services, so that customers are offered a broader range of service options at lower fares. There is extensive empirical evidence demonstrating that alliances provide important consumer benefits, including:

• Substantial growth in the number of nonstop international services;
• More connecting service options to more cities, with reduced travel times;
• Substantial fare reductions (of as much as 30 percent); and
• Enhanced competition among alliances and nonaligned airlines.

For example, 26 airlines account for 95 percent of all nonstop service between the United States and Europe. This is the same number of airlines that provided service 15 years ago, yet the number of daily nonstop frequencies between the United States and Europe has increased 33 percent since 1994, from 500 to 692 flights. Overall, about 40 airlines provide scheduled trans-Atlantic service.

Metal neutrality has allowed alliance partners to expand service options for passengers by eliminating incentives to maintain duplicative capacity at specific times and, instead, reallocate that capacity on the same route at different times of the day. This gives customers greater service options and, in some instances, has led to an increase in capacity on those routes. Also, metal neutrality leads to expanded networks. For example, the oneworld alliance will allow British Airways, American Airlines and Iberia to reach 122, 143 and 195 new destinations, respectively. This also allows airlines or reduce costs, which in turn makes lower fares possible.

Fare data also demonstrates consumer advantages. Since the formation of alliances in 1997, trans-Atlantic air fares have decreased, not increased. On an inflation-adjusted basis, average U.S.-Europe fares have declined more than 10 percent in real terms over the past decade ($720 in 1997 v. $645 in 2008). Fares on airlines with DOT antitrust immunity are on average 6 percent lower than interline fares and 3.4 percent lower than non-immunized codeshare fares on connecting routes, according to a recent study by Compass Lexecon.2 In addition, the Compass Lexecon study concluded that “there is no evidence that [granting antitrust immunity to alliances] leads to higher fares on non-stop overlap routes” across the Atlantic.3

In summary, customers will benefit greatly from the schedule coordination and close integration contemplated by the alliance agreements under review, as well as the enhanced rivalry among the alliances.

Competition Is Enhanced by Three Alliances

Airline alliances, which are a market response to domestic legal constraints on ownership and control of airlines, are now part of the airline industry’s competitive landscape. While cross-border mergers involving EU and U.S. airlines (unlike most other industries) remain prohibited under applicable law, antitrust-immunized alliances allow airlines to capture at least some merger-type efficiencies. These alliances also are enabling European and U.S. carriers to take advantage of the commercial opportunities offered by the historic EU-U.S. “open skies” inter-governmental air service agreement effective March 2008, which substantially reduced regulatory barriers to competition in air service across the Atlantic. Alliances are delivering on the open skies agreement’s promise of enhanced competition and expanded service benefits for consumers. These alliances thrive in an open-skies environment because they allow the participating carriers to respond better to customer demand and preference concerning a number of important service factors, including convenience relative to itineraries, equipment type, in-flight service, network/connection opportunities and price. No alliance holds a leading share of the U.S.-Europe air travel market, and the three alliances have increased their combined share of that market by just 1 percent over five years.

The expanded capacity, integrational efficiencies and network scope of an alliance allows the alliance members to launch new service to cities where another alliance has a hub, thereby creating competitive options for consumers. Such network competition illustrates a point many economists make – that in today’s international air transportation market, success is more about connectivity, customer choice and broader network scope, and less about nominal market share in individual city pairs. The ability of the alliances to offer service not only on core hub-to-hub routes, but also competitive service options to trans-Atlantic behind/beyond points, enhances competition and benefits consumers. As discussed above, such competition produces dramatic consumer benefits.

Financial and Employment Benefits

Based on data that ATA gathered from its members, alliances granted antitrust immunity by DOT have generated approximately 15,000 U.S. airline jobs. We believe European airlines in these alliances have experienced similar benefits. For an industry that lost 28,000 jobs in 2008 and has 150,000 (or 28 percent) fewer employees than it did before September 11, 2001, these additional jobs are significant, particularly in the current economic environment. As a result of the global economic crisis, U.S. airlines lost $9.5 billion in 2008, and the International Air Transport Association is projecting another $9 billion in worldwide airline losses this year. Air traffic and revenues are down substantially, communities have lost service and thousands of airline jobs have disappeared. In such adverse economic circumstances, alliances provide European and U.S. airlines with opportunities to expand competitive air service and limit economic, employment and service losses.

Conclusion

As a direct result of alliances, European and U.S. airline customers enjoy more international service, greater competition and lower fares. Carriers compete not just on a discrete city-pair basis (which, in most cases, can only sustain one or two nonstop operators), but primarily on a network-to-network basis. The Commission’s analytical framework should not be limited to traditional city-pair analysis, but instead should examine the consumer benefits and competitive impacts on a network basis. Passengers on both sides of the Atlantic will benefit greatly from vigorous competition among the three international airline alliances. In light of the demonstrable benefits alliances offer air travelers, ATA strongly urges DG Competition to find the underlying agreements to be compatible with European rules on restrictive business practices and approve them.

Respectfully submitted,

James C. May

President and CEO

[1] ABX Air, Inc.; AirTran Airways; Alaska Airlines, Inc.; American Airlines, Inc.; ASTAR Air Cargo, Inc.; Atlas Air, Inc.; Continental Airlines, Inc.; Delta Air Lines, Inc.; Evergreen International Airlines, Inc.; Federal Express Corporation; Hawaiian Airlines; JetBlue Airways Corp.; Midwest Airlines; Southwest Airlines Co.; United Airlines, Inc.; UPS Airlines; and US Airways, Inc. Associate members are: Air Canada; Air Jamaica; and Mexicana.

[2] “Competitive Effects of Airline Antitrust Immunity,” Compass Lexecon study, filed as Exhibit 1 to Joint Applicants’ Motion for Leave to File and Supplemental Comments, Sept. 8, 2009 (Docket DOT-OST-2008-0252), at 16. These findings are consistent with those of a 2007 study by economist W. Tom Whalen, which also found that fares offered by antitrust-immunized alliances are lower than codesharing or interlining fares. W. Tom Whalen (2007), “A panel data analysis of code-sharing, antitrust immunity, and open skies treaties in international aviation markets,” Review of Industrial Organization, 30:39-61.

[3] Compass Lexecon study, at 23.

cc: President Jose Manuel Barroso
Vice President Antonio Tajani
Director General Philip Lowe
Director General Matthias Reute
Director Daniel Calleja Crespo
The Honorable John Bruton