DOT Snubs DOJ In Approving Airline Alliance
By Aruna Viswanatha | February 15, 2010 6:27 pm

In a weekend ruling that partly ignored the Justice Department’s views, the Transportation Department granted immunity to British Airways, American Airlines, and Iberia to jointly schedule and price flights without running afoul of any antitrust laws.  The agency did ask the airlines to give up four pairs of takeoff and landing slots at London’s Heathrow Airport in order to get final approval.

The airlines are members of a larger, global alliance of 11 airlines, but only the three airlines listed would be involved in the transatlantic market that the DOT filing addresses.

The Transportation Department granted similar approval to Continental and United Airlines last year to join the Star Alliance, and the Bush administration approved the SkyTeam alliance before that.

“[W]e have tentatively concluded that the potential benefits outweigh the potential harm,” the DOT said in its filing.  ”[T]he proposed alliance would enhance competition around the globe by creating a viable third immunized alliance that is comparable and more competitive with the product and service offerings of Star Alliance and SkyTeam.”

In its weekend filing on the alliance known as Oneworld, the Transportation Department did not ask for any routes to be taken out of the grant of antitrust immunity.

The Justice Department had argued that the alliance would hurt competition on six transatlantic routes, and suggested the airlines both divest slots and  carve out certain routes from the grant of immunity. In the previous case last year, the Transportation Department — at the urging of the DOJ — required the Star Alliance to remove eight routes from the antitrust protection.

The Transportation Department has a final say on such matters, and the Justice Department’s role is only advisory. Disagreements between the two agencies over the Star Alliance application forced the White House to step in and mediate, and lawmakers urged the Transportation Department to defer to the DOJ’s judgment.

This weekend’s ruling is subject to a comment period, and observers expect the Justice Department to weigh in again. Additional comments could pressure the DOT to impose stricter conditions, said Brian Havel, a professor at DePaul College of Law and director of the International Law Aviation Institute, in an e-mail to Main Justice.

A Justice Department spokeswoman said, “We would not comment on whether or not we will file more comments.”

The immunized airlines would have the third largest share of the market for flights between the U.S. and the European Union, but would carry almost 5o percent of passengers traveling between the U.S. and the United Kingdom, according to the Transportation filing. In order to mitigate those effects, the DOT asked the Oneworld team to divest or lease four slot pairs at Heathrow to other airlines.

When American Airlines and British Airways previously sought antitrust immunity for a joint venture in 2001, the DOT had asked the airlines to surrender 16 slots per day. “The DOT’s request that oneworld surrender Heathrow slots is little more than a bone they are tossing to the DOJ,” Havel said. “The DOJ brought up slot surrender in its public comments, but was likely envisioning something more comprehensive.”

The airlines rejected Justice’s arguments, arguing that the model the DOJ was using to predict prices was flawed, and that slots at Heathrow were now available on a secondary market.

The Transportation Department agreed in part with the airlines and said that some of the nonstop overlap markets that Justice expressed concerns about were used as connections to another final destination and would face competition from other flights to those destinations.

Grants of immunity have generally been the carrot to encourage countries to sign open-skies agreements with the United States. The Saturday release of the filing was done in order to precede the second round of discussions on the agreement between the U.S. and the E.U., which began today in Madrid.

The DOT ruling also puts pressure on the E.U. to also approve the alliance, the New York Times reported. At the beginning of the month, the European Commission’s competition arm said it was considering proposed remedies the airlines had offered in order to alleviate the Commission’s concerns.

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