Continental Star Alliance membership far from certain

by Charlie Leocha on April 9, 2009

Yesterday, many travel headlines said that Continental Airlines’ request to join the Star Alliance had been approved by the Department of Transportation (DOT). But the dust is far from settled. The DOT “proposed” to approve antitrust immunity.

The battle for approval of this alliance and others has been raging for months behind the scenes. In the closing days of the Bush administration, the airlines were working furiously to get approval rushed through before the new, presumably more consumer-friendly, administration got into office.

That push was blunted by a coalition of Senators, Representatives, the Department of Justice, business travel associations and consumer travel advocates. This DOT proposal to grant antitrust immunity is the start of an intense period of 21 days of comments followed by about another two weeks for airline industry rebuttals.

This “approval,” in its current form is far from a sure thing. Already, Rep. James Oberstar has bellowed his disapproval of these alliances and has introduced separate legislation that may derail any of these efforts.

The Business Travel Coalition has issued a call to its members to fight to insist that the alliance is not allowed to negotiate as one massive corporation. And many consumer advocates, including this newsletter, have cautioned about approving these alliances with such a broad antitrust immunity.

The issue is not whether or not airlines can band together to share frequent flier miles and airline clubs. The biggest issue is whether the government is going to allow these airlines to create a defacto international merger with the rights to bargain jointly.

If the antitrust immunity approval spills over to business negotiation rights, the global transport world will be faced with three massive defacto corporations that can dictate schedules, airfares and services at will.

Consumers, whether business travelers or leisure travelers will have fewer options between airlines for international travel. Competition will be reduced dramatically. Airfares will be higher. New low-cost entrants will be barricaded from long-haul international routes (remember Freddie Laker and Laker Airways). These alliances are not good for any level of consumers.

Tour operators, travel agents, corporate travel departments, caterers, jet fuel providers, airplane tire manufacturers, repair facilities and far more will suffer if the government allows three alliances with carte-blanche antitrust immunity to negotiate as single entities.

These changes, requested by the airline alliances, are not minor changes to the status quo, they are fundamental changes in the system. The approval of the new enhanced airline alliances requested by oneworld, SkyTeam and Star Alliance are mergers as far as international travel goes, for all intents and purposes.

Even the DOT carefully notes, “the carriers would remain subject to antitrust laws with respect to domestic service.”

In such an interrelated global world, the current lively competition between airlines and multiple options for travel should be encouraged rather than squashed in a government approved oligopoly.

For next 21 days the battle between freedom to compete on international air routes or control of travel by three massive airline alliances will be being played out. Tripso clearly stands on the side of freedom to travel.

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.

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Tagged as: airline allinaces, antitrust immunity, oneworld, skyteam Star allliance

  • http://www.bonjourparis.com Karen Fawcett

    Ah – those frequent flyer miles. Jumping ahead, will my 200K+ miles accumulated on Continental be redeemable on United or another Star Alliance partner?

    Please say yes.

  • http://airlineroute.blogspot.com Jim Liu

    The Laker Airways reference dated back in the 80s when there were no such big ideology of airline alliance. But on the opposite side, Virgin started also in the 80s but is still alive and well today.

    It wasn’t about the alliance that kills the new entrants, but rather current economic environment as a whole. Last year alone 82 out of over 1600 airlines collapsed and ceased operation. Even joining an alliance doesn’t gets you immuned – VARIG, Alitalia, Ansett Australia. Which one is worse? Let one go away and make Tour operators, travel agents, corporate travel departments, caterers, jet fuel providers, airplane tire manufacturers, repair facilities and far more suffering? And what about the “Freedom of travel”? If one or two goes away like ATA, Skybus, your so-called “freedom of travel” option is also being reduced.

    Alaska Airlines is questioning Virgin America’s “nationality” issue. It’s another tactic to drive their competitor out of business. Aren’t they trying to reduce our “freedom of travel”?

  • http://airlineroute.blogspot.com Jim Liu

    In addition in your response to the DoT regarding “barrier to entry for any long-haul low-cost carriers”.

    This has pretty much nothing to do with the alliance itself, but rather the airlines’ operational cost. The success of low-cost airlines on the short/medium-haul is mainly due to shorter hops allowing them to stretch the maximum utilization of a single aircraft per day, for say like 15-16 hours, instead of 10-11 hours. With long-haul flights, you need to have at least 1.5 – 2 aircraft to support 1 Daily operation on a single route where you can have 1 aircraft flying to 5-6 destinations a day. There’s another difference of the expense.

    Also, the airport landing cost is another issue.

    Why would a low-cost carrier wants to fly from one of the top 20 most-expensive airports per say Tokyo to Los Angeles? The airport landing fee and others is basically killing them. AirAsia X is considering flying to LA and NY. Which airport are they going to choose?

    There were many low-cost carriers tried and failed. Even premium-service carriers like EOS, Maxjet, Silverjet. Oasis Hong Kong also failed. Did the alliance killed them? No. In fact they provide superior service than any of these alliance and played a big influence on the role of big air fare reductions. But it was the investors either pulled the plug or shut their umbrella off on a rainy day that killed them.

    This is simply a common sense which I think people at DoT examining this are aware of.

  • http://www.tripso.com/author/leocha Charlie Leocha

    Karen,
    I’m not sure what the final situation on mileage will be, but I expect that Continental miles will be good on Star Alliance airlines once all is settled.

    Jim,
    Economic conditions are one reason to fail, the other is being squeezed out of the market by a group of controlling airlines. My reference to Laker was to the power of a handful of airlines, in this case BA, Pan Am and TWA, to drop their prices and drive Laker out of the skies. If three alliances control 90+ percent of the traffic across the Atlantic, you’d better bet that they will make sure no startups succeed.

    That is my point. The alliances act like a single corporation. Their Alliance Agreement has clauses like “The alliance shall be administered by a joint alliance committee.” Already, planes are painted with Star Alliance colors.

    These three alliances will protect their turf, they will drive a hard bargain and they will do their utmost best to drive out competition. It is in their nature and has been repeated time after time in our domestic markets. Now with Open Skies, get ready for the same internationally.

  • http://airlineroute.blogspot.com Jim Liu

    The problem is in the 80s it was the Biggies that lowers the price to drive out new competitors. That doesn’t work quite well today. In the 2000s it is the opposite. The new entrants / low-cost carriers are more lean and flexible to lower the price and force the biggies respond the same.

    It’s true when you unite everyone under single entity, price would go up. However, regular consumers like us will find ways to find cheaper offerings. Airlines will eventually bow to that and cutting their yield to respond what we want.

    You have pointed out the negative factors. While it strengthen your arguments with the document filed to the DoT, but please also take notes of the positive sides – airpass, quicker way to earn air miles, new travel routing options, cross airline upgrades. Increasing bargaining power on airlines’ side towards corporate travel? Not quite, it would also brings in more travel options to keep the contract.

    Being in an alliance is not necessary a good news to the airline, because they’re facing internal product competition in terms of inflight service and hardware, because consumers are accepting the ideas of alliance and expecting you to deliver identical products that you advertised.

    Also, lots of corporate companies in America and across the globe are also looking to consolidations, wouldn’t that danger our freedom of….choice, as well?

  • Kmetzi

    Continental and it’s customers benefited from the Skyteam Alliance and if approved this year will benefit from the Star Alliance. There will continue to be competition, and the fares will only bear what the market demands. These Alliances are good for the Airlines, good for the customers, good for Airline employees (labor), and good for the Industry. These major alliances will compete against each other for customers domestically and internationally by providing the best fares, connections, lounges etc ,etc.

  • Anne

    I don’t see how Continental switching from one alliance (Sky Team) to another (Star) is that big of a deal. They were in one large group, now they are moving to another. I’m not happy about it, but that has more to do with my choices of flights from my home airport (currently all Sky Team, so my elite privliges carried on all flights).

    I do understand how monopolies are bad for consumers, but really, is this switch that big of a deal?

  • skyguyj

    Regarding the Continental Star Alliance “Issue”, I would like to add my 2 cents (for what it’s worth!).

    I am Platinum Elite with Continental, and have been for several years. I am also Platinum with American/Oneworld and Gold with Lufthansa/Star Alliance. 3 Alliances, and all 3 with some form of status. (Not trying to brag but rather just showing that I fly …. A LOT!).

    I personally don’t believe Continental joining Star Alliance is a wise move, for ANY OF US! With consolidation comes a lack of choice, yet another set of code-share flight numbers we have to deal with for the SAME flight, and an overall downturn in Customer Service. The ONLY thing the DOT is right about is that this will INCREASE revenue sharing.

    Historically, with merger and consolidation comes HIGHER FARES. For those of us who book our business travel with regularity, we know “code-share” flights are usually HIGHER in price than if we booked directly with the operating airline.

    I understand Continental’s position, they are running scared! With the approval of the Delta/NW merger, they HAD to do something. But joining Star Alliance is NOT the answer. It would be better to pursue a MERGER if anything, and no doubt whomever they merged with, they (Continental) would end up the surviving/dominant carrier. It is you and I, the “Elite” Frequent Flyer that is going to suffer if this “Alliance” is approved. Currently, as a Sky Team member, we have the options of using NW AND Delta domestically, along with KLM and Air France for the most part, Internationally. With Star Alliance, our ONLY other option domestically will be with United. I don’t know about you, but United is ALWAYS my last choice domestically. Thier Customer Service levels, even flying in thier Premium Cabins, are sub-par at best. Thier Airport Staff are jaded, thier In-Flight staff are ageing and fed-up with Management Golden Parchutes while they are forced to take pay cuts. I want NO part of United, even as 1K member being “Grandfathered-in ” by Continental.

    Additionally, right now, United and the other Star Alliance partners, (for the most part), have coordinated services, share the same terminals internationally etc. If Continental comes into the mix, I am “guessing” we will be required to change terminals i.e. London, Frankfurt, Narita etc. Required ground times will be longer, more bags will go astray, and on and on.

    I can not see a single benefit to ANY of US if this goes through. All I see is HIGHER FARES, more confusing flight numbers, lost luggage and inconvenince to everyone.

    There is more to travelling than “who will honor my miles”. I for one say to the DOT: Make Continental STAY PUT!

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