January 20 Airline News

[chipmunn]

DL, NW, & CO appear to be set on a direct collision course with the DOT. Last Friday the DOT said if the airlines implement the alliance without accepting its conditions, it would institute a "formal enforcement proceeding".

This should be interesting and will effect relations between the regulators and the threee airlines in the future.

In regard to the DOT statistics, the DOT's ruling said UA - US alliance involved 543 overlapping markets accounting for 15.1 million passengers per year. In "dramatic contrast" the trilateral alliance would overlap in 3,214 markets accounting for 58 million passengers per year.

Therefore, the three-way alliance is about 6 times larger than the UA - US accord.

Chip

 

[RowUnderDCA]

[blockquote]
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On 1/21/2003 3:38:19 PM luv2fly wrote:

Reports have indicated that the three way alliance complies with the requirments and concerns set forth by the DOJ. I for one am glad the triad has decided to challenge the DOT's restrictions as there seems to be a true hypocracy developing amongst the other airlines.
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[/blockquote]

luv2fly-

check out 49 USC sec. 41712 and sec. 41720. I believe that these are the provisions of law that the DoT is adhering to in its procedure.

I'm guessing there's more law out there. But, perhaps, 41720 sets forth the procedures to determine whether a carrier or carriers is engaging in unfair methods of competition under 41712.

Note that the law explicitly states that this is a separate review of the DoJ.

Now, I don't know whether this language would create two separate and equal enforcment authorities or subjugate one to the other. I would guess they are two separate authorities.

just some late night reading

 

[luv2fly]

[blockquote]
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On 1/21/2003 3:52:02 PM chipmunn wrote:

NW & CO should be good at this litigation. This is the second time the U.S. government has brought up a legal proceeding against the two airlines.

Chip
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[/blockquote]
And what was the end result of those proceedings?

 

[chipmunn]

U.S. to fight 3 airlines on joint marketing pact[BR][BR]WASHINGTON (Reuters) - The U.S. Department of Transportation said on Tuesday it would take action against three airlines which have said they will defy some of the conditions set by the government for their joint marketing agreement.[BR][BR]Complete Story: [A href="http://biz.yahoo.com/rc/030121/airlines_codeshare_enforce_1.html"]http://biz.yahoo.com/rc/030121/airlines_codeshare_enforce_1.html[/A]

 

[luv2fly]

Thank you for the references Row.
It appears to me that there is a conflict of interpretation. On one side the DOT has serious concerns, while the DOJ appears to be satisfied with the provisions of the proposed alliance. The only thing that is readily apparent is the fact that this will be decided by judicial proceedings.

 

[RowUnderDCA]

The DoJ enforces antitrust law. I believe that is more specific in it's analysis and application, but not on the airline industry. I suspect that the folks at DoJ think that the folks at DoT don't understand each others laws, but I think that they don't question each other's authority.

All air carriers interact with the DoT in their course of business. The DoT has an obligation to exercise its authority and discretion in the public interest. I don't know how that will play out, but I don't think it's a conspiracy. Sometimes judgment calls are hard to make: how big is too big when it comes to unfair competition? what is unfair competition? how is the public disserved by an airline industry that discourages new entrants because it is so concentrated? etc

I think that NW had to give up some ownership interest in CO or some governance control. But they kept the code share.

Uhm, what else... oh, UA/US withdrew their application for merger didn't they? I mean UA said yessir before the command was even pronounced.
We'll see, but to be fair, DoT has to make a determination... I mean would AA/CO/NW/DL have been too big?

 

[luv2fly]

[blockquote]
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On 1/21/2003 3:22:54 PM chipmunn wrote:

This should be interesting and will effect relations between the regulators and the threee airlines in the future.

Chip
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[/blockquote]
What effect on future relations did it have when they disallowed the proposed U/UA merger. Your conspiracy theories amuse me.

 

[chipmunn]

Tonight the AP reported Darryl Jenkins, head of George Washington University's Aviation Institute, said the restrictions were the most far-reaching the Department of Transportation had ever imposed. In the meantime, Jenkins said, transportation officials can punish the three airlines by denying their requests for overseas routes.

Chip comments: Presumably, the DOT can rescind route authority for any airline.

Chip

 

[DCAview]

I wouldn't expect DOT to revoke any international route authorities for any of the three airlines, but I do expect them to fight Delta, Northwest and Continental pretty hard on this one.

Washington is a town of turf wars and this is a key opportunity for the Transportation Department to establish itself as a key player in airline consolidation and a rival to the Justice Department.

The US Airways-United alliance and the DL/NW/CO alliance are really the first tests of the codeshare-review law that Congress passed in the wake of the first CO/NW deal and, having approved US/UA without much trouble, DOT may be more than willing to take on a challenge from DL/NW/CO to prove that it will fight to defend its newfound jurisdiction.

 

[winedndined]

Folks this is a codeshare....not a friggin' merger! The DOT should back off and allow these airlines to proceed and do all possible to survive. It's not like they're asking for a handout...just an opportunity to expand without the added costs...what's the alternative? ... more layoffs, downsizing and possible bankruptcies??
If preserving competition is the DOT's objective,then why kill the alliance and put three competitors out of business?

 

[RowUnderDCA]

oh-

and it's not just a code share... It's an advantage in CRS's; It's a frequent flyer combo ( a bigger deal IMO); and It's cooperation and consolidation in corporate deals (a really big deal, IMO). Obviously, the DoT is concerned about gate saturation (maybe an over-reaction IMO) And finally, it's 35% of the entire domestic market.

Look, I'm a bit ambivalent myself, and wondering if this is just so many deck-chairs. But, I don't think that DoT is out of whack, here. (on the Titanic, that is)

 

[RowUnderDCA]

oh.... I don't know.

Look at a map. This alliance isn't about expanding as much as layering or increasing concentration. US/UA is, well obviously, more about end-on code shares. I mean is the public better served by having 26 choices over 4 hubs between Grand Rapids and Lexington on DL/CO/NW?

And, again looks like the alliance, itself, is going to reduce 'three competitors' to one competitor.

Finally, I don't think that these carriers will disappear. This is more about getting either US or UA to disappear by screwing up their bankruptcy financing.. .brinkmanship. We'll see how quickly one of the three has cold feet if US or UA liquidates.

Just food for thought.

 

[DCAflyer]

[FONT size=5][FONT size=2]Editorial from USA Today (1/27/03):[/FONT][BR][/FONT][FONT size=3][STRONG][BR]As more airlines join forces threats to consumers grow[!-- End HeadLine --] [/STRONG][/FONT]
[P][!-- Begin ByLine --][!-- End ByLine --]
[P][!-- Begin Story --]When three of the nation's largest airlines announced plans to form an alliance last August, the deal raised concerns for consumers. Delta, Northwest and Continental claimed the ''code-sharing'' agreement would benefit passengers by combining frequent-flier programs, expanding access to airport lounges and simplifying bookings on each other's connecting flights. But coming at a time when the industry is desperate to stanch hemorrhaging losses, the arrangement also threatened to result in fewer flights and higher ticket prices.
[P]Indeed, the alliance's potential to stifle competition prompted the Department of Transportation (DOT) last week to threaten legal action blocking the airlines from joining forces unless they ensure that fliers don't bear the brunt of the cost-saving move. Yet in an extraordinary dismissal of a federal agency, the airlines brazenly declared that they would go ahead and launch their partnership this summer.
[P]The trio felt emboldened to thumb their noses at the DOT because another federal regulator, the Justice Department, already had given the airlines a pass to form their alliance with a few minor changes. Had both government watchdogs barked in unison, they might have forced the airlines to refashion the deal.
[P]The DOT has potent objections. While the alliance offers fliers some benefits, the agency concluded that the airlines' combined dominance, a third of all air travel, could monopolize many markets. Among its worries:
[P]* Route dominance. The alliance would be so dominant in some places that competitors could be forced to give up routes. When an airport is dominated by one airline and lacks a low-fare competitor, prices often go up, according to a 2001 DOT study.
[P]* Collusion. Implementing the alliance requires extensive negotiations that could give the airlines opportunities to make secret deals to raise prices and cut service. That would deny consumers the benefits of the current no-holds-barred rivalry.
[P]* Overblown promises. The three airlines vow that the alliance will bring ''seamless service to thousands of new markets.'' But the fact that they currently offer overlapping service on more than 3,200 routes raises questions about how many new destinations remain untapped. The carriers say a passenger who has to purchase two tickets to reach a destination would be able to arrange connecting flights on a single ticket in the future. The DOT estimates such ease of booking would occur for just 89,000 passengers a year -- a fraction of the 600 million who fly annually in the USA.
[P]To address its concerns, the DOT asked the airlines to give up underused gates in a move that could spur competition. The airlines agreed to surrender only 13 gates among scores that may be underutilized at hub airports, airlines' connecting-flight centers. They also balked at permanently limiting shared connecting flights and joint bids for corporate travel.
[P]Justice officials, by contrast, ruled that their antitrust concerns were mollified by minor concessions, such as the airlines' promise not to extend their alliance to flights from hubs. By failing to weigh in with one voice against the alliance, the government presents a weak case for forcing more needed changes in the alliance.
[P]That's a missed opportunity for preserving airline competition and, ultimately, protecting consumers.[TODAYS_TOPIC]Today's debate: Airline competition[/TODAYS_TOPIC][OUR_VIEW]Mixed signals from agencies lead to move that could hurt fliers.[/OUR_VIEW] [!-- End Story --][!-- END DATA --][!-- End Sandbox --][/P]