DOT Approves Continental/United/Lufthansa/Air Canada Antitrust Immunity with Limited Carveouts

Last Updated Jul 13, 2009 12:28 AM EDT

Despite the Department of Justice's objections, the Department of Transportation has moved ahead in approving two proposals that will significantly benefit the carriers involved as well as the traveling public:
  1. Antitrust immunity has been approved for Continental to join the Air Canada, Austrian, bmi, LOT, Lufthansa, Swiss, TAP, and United agreement that already exists. This allows them to collaborate on pricing and schedules over the Atlantic.
  2. The bigger news is that United, Lufthansa, Continental, and Air Canada have had their joint venture, called Atlantic Plus Plus, approved with antitrust immunity. This will expand upon the existing agreement between United and Lufthansa which currently splits revenue between the two on most Transatlantic flying.,/li>
The DOT did give a nod to the DOJ by putting out some limited carveouts, but these are fairly limited. This is a big step for the alliance.

In the DOT's final order (PDF), it made the determination that this alliance is a good idea for the following reasons (directly quoted from the DOT):

  • First, the public benefits possible through an immunized alliance are not available through other means. Ownership restrictions preclude truly integrated joint ventures or mergers, similar to those pursued in other industries, among U.S. and foreign air carriers, and the Joint Applicants have demonstrated that they will not proceed without immunity.
  • Second, immunity enables the Joint Applicants to coordinate fares, services, and schedules so that consumers are offered a broader array of choices within the alliance than could be offered without immunity.
  • Third, when alliances offer broader mixes of products, supporting the objective of offering service "from anywhere to everywhere," an alliance faces competitive pressure both from other carriers in particular city-pair markets and from other alliances offering global network connectivity.
  • Finally, the vast majority of transatlantic passengers use connecting services and benefit from the improved connecting products at lower fares that integrated alliances provide. Even for those passengers who choose nonstop travel, the existence of coordinated connecting services offered by integrated alliances disciplines fares on nonstop routes.
I'm not sure how much I agree with that last point, but overall, this is a good framework for deciding why to approve an alliance. There were, as I mentioned, just a few carveouts that made them uneasy. Actually, it made the DOJ uneasy, so the DOT probably felt it was worthwhile to do it just to keep the peace.

These carveouts were put in place because it is felt that there wouldn't be enough competition on these routes if the carriers here were permitted to collude. In other words, there is currently competition between two carriers that would no longer be competing in these particular markets. These include New York to Copenhagen, Stockholm, Geneva, and Lisbon over the Atlantic. The existing carveouts between Frankfurt and both Chicago and Washington will be removed, however.

Between the US and Canada, carveouts will be required between Toronto and Cleveland, Houston, Chicago, and San Francisco as well as Houston to Calgary and New York to Ottawa. Over the Pacific, only US to Beijing routes are carved out. Any of these carveouts can be removed if new competition is introduced into the market.

This is a big step forward for United and Continental. Now it remains to be seen what will happen with the application submitted by British Airways and American. In the past, that application has been turned down because of the lock on flying opportunities in and out of Heathrow. Now that there has been liberalization, I have to think this should be approved. Then we will have three true alliances competing with each other.