Alliances of global airlines — oneworld, Skyteam, and Star Alliance — are under attack. Attached to proposed legislation to upgrade the air traffic control system, a new proposal could be the death knell for the alliances — or at least the end of their legal presence in the United States.
Rep. James Oberstar (D-Minn.), a longtime critic of the alliance system is harnessing unease in Washington D.C. about the competitive impact of international pacts to back a bill that could have a drastic impact on existing and planned airline cooperation.
The chairman of the U.S. congressional committee that oversees airlines is pushing an aviation bill that would automatically withdraw antitrust approval for alliances within three years, although they could be restarted under more stringent rules.
The bill is attached to a $70 billion proposal to modernize the creaking U.S. air traffic control system, which gives it a greater chance of becoming law.
Its provisions could lead to the rolling back of the antitrust immunity, or ATI, already in effect for members of the Star and SkyTeam alliances. It could also derail efforts to expand these groupings and extend immunity to members of Oneworld, the smallest of the three.
Remember that Oberstar is the same legislator trying to block liberalization of airline ownership rules. I would argue that alliances would never have become necessary if nations — like the US — had more reasonable cross-border ownership rules. The alliances are a way to give the companies backdoor merger benefits (e.g., “revenue sharing” on trans-Atlantic routes) alongside the efficiencies that come with aligned schedules.
So what happens if alliances are declared a monopoly in the US, or elsewhere? Frankly, it could be a good thing for passengers, as long as codesharing isn’t entirely eliminated in the process. Alliances may have benefited travelers where schedule alignment and frequent flyer partnerships are concerned, but they’re legal oligopolies. They admit as much: That’s why they require antitrust immunity in order to function.
If airline alliances were to disappear, international passengers would likely see some inconvenience at first. But how much inconvenience? Global lounge access? Priority tags on your luggage? Really, what would change? And for how long? Over time, airlines would negotiate bilateral partnerships in lieu of broad alliances.
And what about the upside? As it stands, alliances are essentially a legalized price-fixing scheme. They’ve always been for the convenience of the airlines, not the passenger. So eliminating price fixing sounds like an easy win for the consumer.
Oberstar may be wrongheaded with his advocacy of protectionism, but he may be onto something with regard to alliances.
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March 10th, 2009 at 7:55 am
And with the upcoming changes to the Air France / KLM miles system, flying with a specific alliance is becoming less and less interesting. (Basically, they’re giving fewer miles for less flexible tariffs, which means that with my ~100,000 miles actually flown on relatively cheap tickets in 2008, I’d have gotten somewhere around 40,000 level miles credited to my account, i.e. barely enough to hit Gold.)
March 11th, 2009 at 12:40 pm
With this kind of legislation we will ensure that our airlines will lose on their international routes (those are the one that still make money for US airlines) and ensure the certain death of at least one of the big carriers. With legislation like this we are forcing our nation into a Soviet area model that will not just end with the airline industry. Next will be the automotive etc. The end result could be that no other country wants to work with us and we will jeopardize jobs for Americans and the economy of our nation. Just look at how our lobbyist and their interest group handled the issue with DHL and at the end DHL did what would become a norm in our nation – close the US operation and put many American people out of a job, if you don’t want our investment and business than we will go away – only US companies will provide products and services to the US. How would we feel if this kind of laws would be implemented in other countries. We would cry foul play and this is anti competitive and anti American etc. Instead of becoming a Soviet area protectionist society we should look at solutions how we will practice what we preach and ensure the best interest of the ability of our companies to survive and to be the best. Airline Alliances are there to ensure that airlines can provide a better service and that they can benefit from each other.
Should this become a law, I will have to at my best interest and start flying more other airlines on international travel, since they have in general better service and my loyalty still would count for something. In the US loyalty will not count for anything any more, other than checking in a free bag. The only carrier that would benefit from this rule would be Southwest and they would then become my preferred US carrier – you know what you get and that is not much, but at least you don’t have to pay extra. The legacy carriers and some newer ones will then probably have to follow the example that Ryan Air in Europe is setting with thinking about also charging to go to the lavatory since that will be the only way how they can make money. It would be the certain death of the friendly sky’s and bring our nation back closer to the stone age.
March 11th, 2009 at 5:20 pm
I’m not sure that I understand how these alliances are creating monopolies. (”Oligopoly,” maybe, but that doesn’t imply the same price control as “monopoly.”) If one alliance controls all the slots between two airports, then you would certainly be correct. But is that the case, either between U.S. airports, or on international routes?
And I think ZD is right: Oberstar’s amendment will only hurt the larger legacy carriers in the U.S., for which international flights are generally their most profitable.