DOT/EU authorizes transatlantic airline collusion, again

by Charlie Leocha on July 5, 2013


The Department of Transportation (DOT) and the European Union (EU) don’t seem to have ever seen an airline deal that they don’t like. Consumers are being consulted and there are comments that can be submitted to DOT, but the airlines are getting what they want. Consumers are getting less competition and ultimately higher prices.

Right now rumors are flying that Ryanair is looking at a low-cost transatlantic route system, but those in the know seem to think the chances of that happening in the short term are somewhere between slim and none. So, we are stuck with the current three airline alliances that have carved up the international airline market.

Of course, there are some independents like Emirates Airlines that are making trouble for the American and European airlines, but for the most part, the airlines are joining together more and more. The once-independent and trendsetting airlines like Virgin Atlantic are getting into bed with alliances (or at least other carriers) as well.

The airline alliances are drawing more closely together. Many of the airlines that used to only be in an alliance to be marketing partners have formed joint ventures (JVs) and have received antitrust immunity. This means that they can act just like merged airlines — coordinating pricing, capacity, timing of flights, connections, baggage, cargo, marketing, sales and distribution.

The latest knitting together of an alliance has been the joint venture announced by United, Lufthansa and Air Canada. It was just approved by the EU and has received antitrust immunity.

According to the agreement announced today, Lufthansa will surrender a single daily slot to be used by a rival carrier for Frankfurt-New York flights. While the German company may need to modify its timetable to accommodate the change, it will retain a service of three flights per day between the cities.

“We are pleased with the EC’s decision,” Lufthansa spokesman Boris Ogursky said, adding that the agreement reflected an understanding of the joint venture accord’s benefits to customers on both sides of the Atlantic.

Lufthansa, United and Air Canada (AC/A) were told by the EU in October that their accord might infringe antitrust rules by ending competition between Lufthansa and United on Frankfurt-New York services and between the trio for first- and business-class passengers. The EU started probing the accord in 2009.

The approved deal will enable rivals to start as many as seven weekly flights between Frankfurt and New York’s John F. Kennedy or Newark Liberty airports, as submitted by the parties in December, the commission said today.

Amazingly, the final outcome after all of the official investigations was that Lufthansa had to give the equivalent of one flight in and out of Frankfurt.

The next anti-consumer move is the permission of Delta to purchase 49 percent of Virgin Atlantic. This airline has long been the scrappy company that forced the majors to keep their prices down and served to push customer service to such a degree that airlines like BA, Delta, American and United had to pay attention to inflight entertainment, business class amenities and first class luxuries.

Now that competition is gone.

Delta and Virgin Atlantic are one for all intents and purposes. The next step, already requested by Delta, is fold their JV with Virgin Atlantic into the SkyTeam with Air France, KLM and Alitalia. That will pretty much remove Virgin Atlantic as a thorn in the side of major transatlantic carriers.

Delta Air Lines said on Monday that it has completed its purchase of a 49 percent stake in British airline Virgin Atlantic and added the two carriers plan to start cross-selling seats on each other’s flights in July.

The Virgin venture will allow Delta to expand access at London Heathrow, a key international business airport where slot constraints have limited growth.

Delta and Virgin Atlantic expect the DOT to bless their union this autumn. I’m beginning to wonder if the competition gurus at DOT have ever seen any combination they didn’t like.

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