EU starts probe of Air France/Delta Atlantic antitrust immunity pact

by Charlie Leocha on February 28, 2012

The rise of airline alliances has effectively reduced the control of more than 80 percent of transatlantic flights to three competitors — Oneworld, Skyteam and Star Alliance. Oneworld is an alliance of American Airlines, British Airways, Iberia, Qantas, Japan Airlines and others. Skyteam’s major partners are Delta, Air France/KLM and China Airlines. Star Alliance is a blend of United/Continental, Lufthansa, Air Canada and Singapore Airlines.

Some of these airlines have antitrust immunity, some don’t. Those who have antitrust immunity have all set up joint ventures with separate boards of directors and executives to jointly manage their international operations and to share the profits from service.

Legally-speaking, Delta doesn’t fly across the Atlantic any more. Their airplanes fly with Delta crews, but they are flying under the banner of Skyteam and they have coordinated schedules with Air France/KLM and others and the joint venture shares the joint profits.

Alliances are already jointly coordinating flights, schedules, route planning, marketing efforts, advertising, sales campaigns, frequent flier programs, catering and maintenance. These alliances are defacto mergers of the alliance’s international business.

These concerns were voiced by me before the Senate Commerce Committee during their hearings on the United/Continental merger, but did not resonate. Now this new interest in possible anti-consumer consequences by regulators on the other side of the Atlantic is welcome.

Last month, for the first time, European Union investigators began looking into whether pricing and scheduling agreements between members of Skyteam are harming consumers. The European Commission has indicated that such deals could breach EU antitrust rules. The airline interaction has gone much further than the coordination of schedules that regulators first envisioned in agreements signed in 2009 and 2010.

EU findings regarding Skyteam will have an impact on Star Alliance and Oneworld. A transatlantic route system effectively controlled by only three behemoth airlines is not healthy for consumers.

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  • Rab

    get our facts straight about the alliances and the mebers they consist off.

  • david

    Poor Star Alliance, they thought they had many of those airlines ;-)

  • Anonymous

    IT’S ABOUT TIME we get back to real competition. Been complaining about these JVs for a while. Last year SWISS jacked up fares when they joined the A+ JV. I think only Canada has filed suit about AC joining the LH/UA A+ JV. Don’t know where that stands now.

  • Anonymous

     Alliance per se does not automatically mean price coordination. It’s the JOINT VENTURES that are the ones that do it.

  • Anonymous

    >Legally-speaking, Delta doesn’t fly across the Atlantic any more.

    You need to take a basic course in B-law.  Just ask the FAA who is legally operating the aircraft!  Too many other ways to refute this statement so just leave it at that.

    >Sky Team is a blend of United/Continental, Lufthansa, Air Canada and Singapore Airlines.

    I sure hope you are not putting yourself out as representing the rest of us.  My Lab know more about Sky Team.

  • Anonymous

    The latter is obviously a typo. I’m sure he meant Star Alliance.

    But the former - Delta doesn’t fly across the Atlantic any more – baffles me.
    This is clearly a mistake. Delta is surely an operating carrier across the Atlantic.

    Also more importantly, Charlie must differentiate between the Alliance and the Joint Venture. They are not the same. There’s a lot of airlines in the same Alliance that do not coordinate pricing because they are not in a Joint Venture with each other.

  • Anonymous

    Clearly a typo but goes to editing, attention to detail, etc. (Another great example of fail: “These alliances are defacto mergers of the alliance’s international business.”)

    Tony, I think you should be elected to this consumer alliance or whatever it is that runs this site.  At least you can put together a cogent argument and edit your work!

  • Charles Leocha

    Sorry about the  typo and inadvertent use of Skyteam rather than Star Alliance. Kairho, I’m glad your Lab has such talents.

    Otherwise, the post about the power of alliances is accurate. TonyA is correct. All alliance members do not have antitrust immunity and all do not coordinate pricing, only those who have antitrust immunity. However, the impact on consumers is similar since they coordinate just about everything else other than prices. Consumer choices for 80 percent of the transatlantic traffic is with one of three alliances.

    Regarding Delta. Legally speaking it is a Delta airplane. It has a Delta Crew. But, the flight is flying under the banner of a joint venture with Air France/KLM. Legally, it is a flight of the Skyteam joint venture, not of Delta Airlines. The prices are set by the joint venture. The schedule is set by the joint venture. The marketing is coordinated by the joint venture. The joint venture has separate offices from Delta. The profits are spread between the members of the joint venture.

    We are dealing with a definition of what is is.

    Other than my obvious error in the initial mix-up of Star Alliance and Skyteam, the rest of the story presents an accurate picture of the lay of the transatlantic airline world. Though, I may not be 100% technically correct at times, the thrust of my argument is good and is supported by the EU actions.

    It is something that every one of us should be aware of and be concerned with.

  • Anonymous

    Thanks Kairho.  Charlie must have received a memo that those of us who work in the actual industry didn’t get. 

  • Anonymous

    Go for it Charlie. Today it’s almost useless to compare fares to Europe. All the 3 Joint Ventures’ fares are clustered so close together that there is NO MEANINGFUL COMPETITION ANYMORE. The only difference is possibly seat allocation to the cheaper booking classes. But even that can be coordinated.

    There is enough evidence that JV’s are not good for price competition. Take a look at Swiss International before June last year and compare their fares to Lufthansa (LH) today. Prior to joining the Joint Venture, Swiss fares were generally lower than Lufthansa’s (their parent). Now they are the same.

    Also since inventory and schedules are coordinated, airlines in the same joint venture can easily cut flight capacity and frequency. With less seats to buy, consumers will see HIGHER prices.

    These JVs are bad news to consumers. I’m surprised you guys only figured this out now. But it’s not too late. It’s an election year. Maybe some folks in Congress can throw air consumers a bone.

  • Anonymous

    A lot of European airline workers for KL/AF/AZ must have either lost their jobs or will lose their jobs. You can see how the Delta/KL/AF/AZ Trans Atlantic JV have pared their flight schedules to the bone and simply coordinated flights (and used codeshares to make it look as if they still fly the route) to Europe. Wonder who is really getting hurt and therefore complaining in Europe? 

  • Ton

    the worse part is not the joint ticketing it is the fact that the members control most major hub airports or at minimum are the 600pound gorilla’s there. That makes it difficult for competors to get into premium airports, even when they do get something of the ground these smaller companies tend to go for a small number of routes which gives the alliances the ability to shoot them down by undercutting them. This is what happened with the small bussiness class only airlines that came up a few years ago

    take klm/airfrance they have multiple brands for short haul, if there is competition they use transavia their no frills cheap airline, as soon as the have the route for themselves the revert to klm or worse their premium cityjet

    the difference? rotterdam-london 113 -150 euro becomes 270 -400 euro

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