The recent Department of Transportation “tentative” approval of Continental’s application to joint the Star Alliance and immunize the “joint venture” is based on faulty reasoning and airline-industry-cooked studies. Plus, the approval and its “joint venture” ramifications are shrouded in secrecy.
The Transportation Department tentatively concluded that “granting antitrust immunity to Continental to join the alliance and approving the joint venture would be in the public interest because it would support increased levels of service in international markets served by the carriers, give consumers more travel options and shorter travel times, and reduce fares.”
The DOT is wrong on all four counts.
• No alliance has even increased levels of service.
• No alliance has ever given consumers more travel options.
• Alliances have never provided shorter travel times.
• No alliance has resulted in reduced fares.
Moreover, any DOT consideration of airline alliances must be made with the increased alliance powers included in these new requests rather than being based on past alliance activities.
The DOT release wording is ominous: “Under the venture, the carriers would jointly arrange capacity, sales and marketing as well as share revenues.”
Here is an alternative dose of reality regarding the four “benefits” of a joint venture, to counteract the DOT misguided assertions.
Increased levels of service
The only increase in level of service that will result is the number of different airline designations that will be attached to the same aircraft. Having a Lufthansa airplane filled with 300 passengers holding tickets on LH999 is no different from from having the same flight with 100 passengers holding UA tickets, another 100 holding CO tickets and 100 with LH tickets. The level of service is the same. The level of codesharing misinformation is multiplied.
More travel options
Having a CO flight connect with a LH flight is no different than having a CO flight connect with the same LH flight but with a CO designation on the ticket. Alliance and codesharing do not create any additional service. In fact, the collusion may reduce options.
Provide shorter travel times
There may be some truth if the options for flights are only between alliance partners. However, when all options are considered, travel times are almost always similar. If anything, by strong-arming passengers onto connecting alliance partner flights, the travel times may increase. In many cases, these alliance members do not even share terminals, in which case, hassles and connection times are increased.
Reduced airfares
Here the results of anti-competitive alliances are exactly the opposite. By having antitrust immunity for marketing, pricing and route structure, the alliances can coordinate pricing better than ever. Such price fixing is blatantly anti-consumer. I do not think that there exists any examples of reduced competition resulting in reduced prices. Plus, the creation of three defacto massive international airlines will serve as an insurmountable barrier to entry for any long-haul low-cost carriers.
The DOT order, alliance application and public comments are available on the Internet at http://www.regulations.gov, docket number DOT-OST-2008-0234. Make your voice heard.
Originally published on Tripso, April 10, 2009
