Will Consider Competitive Implications

In what could be the first, tentative step towards the loosening of current restrictions on cross-border airline alliances -- or, even greater government involvement in such actions -- on Tuesday the US Department of Transportation (DOT) and the European Commission launched a new joint research project aimed at "deepening their understanding of how alliances have affected competition in transatlantic markets."

As ANN has reported, the US-EU Air Transport Agreement -- more commonly known as "Open Skies" -- goes into effect at the end of March, and will for the first time allow EU and US airlines to serve any route between Europe and the United States. A corollary of the deal calls for both sides to develop a common understanding of trends in the airline industry, in order to promote common approaches on competition issues.

Many airlines are part of global codesharing alliances -- such as Skyteam, Star Alliance, or OneWorld -- which allow carriers to sell seats on competitors' flights within the network, and pool staffing resources. Such alliances came to pass due in part to restrictions on cross-border airline mergers and investments.

During the upcoming meeting, the Commission and DOT will interview airlines, travel agents, industry analysts, and consumer groups, as well as perform quantitative analysis on air traffic data, to determine whether such alliances limit competition on codeshared routes.

"The research project will ultimately enable the Commission and DOT to develop a common understanding of competition in trans-Atlantic markets and to inform public discussions of the future of air transportation," according to the DOT release.

There's potential for a larger precedent to be set, as well. Should the EU and US find competition is limited by alliances, it could lead to greater restrictions on any cross-border agreements between airlines. That could have ramifications for current and future foreign investment in US carriers.

For example, upstart US low-cost carrier Virgin America is partly owned by Britain's Virgin Group; Germany's Lufthansa has already acquired a minority stake in JetBlue, a move some believe could result in a takeover if conditions are right; and Air France/KLM has expressed interest in greasing the wheels financially, should a Delta/Northwest merger go through.

Conversely, if the US and DOT give their blessing to continued alliances... it could lead to eased regulations capping the limit of foreign investment in US carriers.

In any case, the process to evaluate the implications of alliances won't happen quickly. A final report summarizing the main findings of the research will be published in mid-2009.

FMI: http://ec.europa.eu/comm/competition/index_en.html, www.dot.gov