[Congressional Record (Bound Edition), Volume 155 (2009), Part 2]
[Extensions of Remarks]
[Pages 2624-2626]
[From the U.S. Government Publishing Office, www.gpo.gov]




A BILL TO ENSURE ADEQUATE AIRLINE COMPETITION BETWEEN UNITED STATES AND 
                                 EUROPE

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                       Tuesday, February 3, 2009

  Mr. OBERSTAR. Madam Speaker, in the past year, our attention in 
aviation policy has been trained on the survival of the U.S. airline 
industry, battered by reduced demand, and volatile fuel prices. This 
emphasis has been entirely appropriate. But we must not lose sight of 
the longer term issue of ensuring that when the airlines return to 
financial viability there will be enough competition to offer consumers 
good service at reasonable prices.
  I have become increasingly concerned with the decline of competition 
in international markets, particularly between the United States and 
Europe. These markets used to be served by independent carriers from 
most European countries, and by a number of U.S. carriers. 
Increasingly, the market has come under control of three alliances 
composed of one or more U.S. carriers and several European carriers.
  The alliances began with ``code sharing'' in which one airline would 
sell tickets on the flights of another airline as though the flight was 
its flight. These arrangements have been defended as providing better 
and more convenient service for consumers.
  In recent years, the airlines in alliances have worked to take the 
process to the next level, asking the Department of Transportation, 
DOT, and the Department of Justice, DOJ, to grant the members of the 
alliance antitrust immunity to jointly plan services and fares over 
international markets served by the

[[Page 2625]]

alliance. When immunity is granted, there will not be competition 
between the immunized carriers in the markets involved.
  Antitrust immunity has been granted for a number of alliance 
operations, and requests are pending for antitrust immunity for most 
other significant alliance operations. If these requests are granted, 
competition in the U.S. to Europe markets will be largely reduced to 
competition among three alliances.
  I believe that the time has come to reassess the wisdom of allowing 
the continuation of the reduced level of competition, which results 
from antitrust immunity for alliances. I am introducing legislation to 
require a major study of whether the benefits to consumers of alliances 
with antitrust immunity outweigh the adverse effects of the resulting 
loss of competition. Following this study, DOT will be required to 
review its policies and make any needed changes. There may also be a 
need for further legislation.
  After any new laws and policies are in place, all grants of antitrust 
immunity for alliances will be reviewed for conformity with those laws 
or policies. This review is now permitted under the terms on which 
immunity was granted. When DOT granted immunity for alliances, it 
wisely reserved the power to amend, modify, or revoke the immunity at 
any time. My legislation provides that no antitrust immunity for 
alliances may continue beyond three years from date of enactment of the 
legislation, unless DOT affirmatively decides that the immunity should 
continue under any new laws and policies.
  A more detailed consideration of U.S.-European aviation trade shows 
that this market is now dominated by three major alliances: Star 
(United/Lufthansa), SkyTeam (Delta-Northwest/Air France/KLM) and 
oneworld (American/British Airways). These alliances have strong market 
power. Combined, the Star, SkyTeam and oneworld alliances account for 
almost 80 percent of the total world airline capacity, 78 percent of 
world revenue passenger kilometers, and 73 percent of passengers 
carried. These three alliances control over 87 percent of the traffic 
between the United States and Europe.
  The DOT has the primary responsibility to review proposed airline 
alliance agreements and antitrust immunity applications for 
international operations. The DOT typically grants immunity if the 
parties to the agreement would not otherwise go forward without it and 
it finds that the immunity is in the public interest. One other major 
factor that also drives DOT's analysis is whether an Open Skies 
agreement exists between the United States and the country of the 
foreign air carrier. The DOJ, though a party in the antitrust immunity 
process, does not have a primary role in reviewing alliance/antitrust 
applications. However, the DOJ does make recommendations, and supplies 
data and policy input to DOT on these issues.
  In 2008, the DOT granted the SkyTeam alliance antitrust immunity to 
coordinate schedules and prices, and operate as though they were one 
carrier. Since the granting of the SkyTeam application, Continental 
Airlines has filed an application to join the already antitrust-
immunized Star alliance, and American Airlines and British Airways 
filed an antitrust immunity application for the oneworld alliance.
  Once antitrust immunity is granted, the airlines involved are removed 
as competitors in highly traveled international markets. As DOT noted 
in the SkyTeam decision:

       Upon implementation, the 4-way JV [joint venture] will 
     bring all transatlantic services offered by the venture 
     participants under the control of the venture. Committee and 
     working groups, composed of senior representatives from each 
     airline will jointly plan and manage capacity, pricing and 
     financial settlement. The 4-way JV attempts to align the 
     economic incentives of the participants to create what is 
     known in the airline industry as ``metal neutrality.'' 
     Instead of competing among themselves for a greater share of 
     revenue by trying to carry passengers on their own metal 
     (aircraft), the participants agree to pool revenues and costs 
     so that they become indifferent as to which carrier operates 
     the service.

  In essence, the granting of antitrust immunity is a de facto merger 
of these airlines over the routes involved. Evidence also suggests that 
when immunity is granted to an alliance, there is a decline in 
competition from carriers not in the alliance. Case in point: in 1990, 
the New York JFK-Paris market had six competing airlines, today there 
are only three. Of the three remaining carriers in the market--Air 
France and Delta, which are part of the immunized SkyTeam alliance--
have approximately 75 percent of the market share. Another major 
market, Chicago to Frankfurt, is dominated by Star members United and 
Lufthansa, which control an 85 percent share; the Amsterdam- Atlanta 
market will now be controlled by newly immunized SkyTeam members Delta 
and KLM.
  The Committee on Transportation and Infrastructure received testimony 
in May 2008, which indicated that domestic competition could be 
hampered by immunized alliances. Concerns were expressed that U.S. 
members of immunized alliances could use the profits realized as a 
result of anticompetitive behavior to subsidize domestic flying.
  In addition, fares in markets dominated by alliances have increased. 
In a summary of its 2005 study on immunized alliances, the Brattle 
Group noted that ``there is evidence that immunized alliances have 
undertaken actions that raise their rivals' costs of interlining at 
certain alliance-dominated hubs. The decline in competition at these 
hubs is further evidence of market power: immunized alliances have 
gained market share at their respective European hubs even as their 
fares have risen.'' The Brattle Group also expressed concern that even 
if ``inter-alliance competition is sufficient to discipline fares to 
destinations that can be served through more than one hub, it cannot do 
the same for destinations better served through a particular hub. 
Passengers to those destinations may be `captive' to the dominant 
alliance at the hub, in the absence of non-alliance competition.''
  As early as 1999, the Transportation Research Board (TRB), in its 
study Entry and Competition in the U.S. Airline Industry, expressed 
concern about the impact that global alliances with antitrust immunity 
may have on competition. The TRB stated that ``although some travelers 
in connecting markets might benefit from these alliances, the potential 
gains to travelers in mainline markets--gateway to gateway routes where 
allied airlines were once main competitors--are not evident, and it is 
possible that these travelers are losing out.''
  The TRB also expressed concern about the long-term impact of 
alliances on unaffiliated U.S. carriers, noting that the effect of such 
alliances could be exclusionary and ``ultimately forcing some 
unaffiliated U.S. airlines out of international markets by diverting 
their feed traffic and weakening their overall route structure to the 
detriment of domestic competition.''
  We cannot afford to be complacent about the threat to competition 
posed by these immunized airline alliances. To begin the discussion, I 
am introducing legislation that calls upon the Government 
Accountability Office, GAO, to study:
  (1) The legal requirements and policies followed by the DOT in 
deciding whether to approve alliances and grant exemptions from the 
antitrust laws under 49 U.S.C. Sec. Sec. 41308 and 41309;
  (2) Whether there should be any changes to those policies or the 
legislative authority under which DOT determines whether to grant 
antitrust immunity; and
  (3) Whether the DOT should exercise the right it has reserved to 
amend, modify or revoke any antitrust immunity previously granted.
  Importantly, this legislation would sunset all immunity grants three 
years after the date of enactment. This is necessary to ensure that if 
the GAO finds that policy changes are needed, DOT will have the time to 
examine and implement them. U.S. and foreign air carriers can then 
reapply for antitrust immunity under any new policies adopted.
  The GAO study will focus on the impact of immunized alliances on 
competition and customer service. It is important to assess whether 
these immunized alliances have resulted in a reduction of competition, 
increase in prices or other adverse effects or have used their market 
power to foreclose rival airlines from competing at alliance dominated 
hubs. Moreover, the GAO will be tasked with analyzing whether network 
size plays a role in adversely affecting competition and whether there 
is sufficient competition among immunized alliances to ensure consumers 
will receive benefits similar to those conferred by non-immunized 
alliances.
  In addition, the bill directs the GAO to determine whether DOT's and 
DOJ's different regulatory and antitrust responsibilities for 
international alliances have created any significant conflicting agency 
recommendations and whether, from an antitrust standpoint, requests for 
antitrust immunity should be treated as mergers, and subject to a 
traditional merger analysis by the DOJ.
  As the Brattle Group noted, the ``move towards alliances has brought 
increased concentration to the transatlantic market, which highlights 
the importance of competition among alliances. This argues for caution 
on the part of regulatory officials in evaluating proposals likely to 
result in further increases in concentration. At a minimum, any 
substantial expansion in the scope of antitrust immunity offered to 
particular alliances (or combinations of alliances) should require 
compelling evidence that there are economic efficiencies that would 
justify the expanded immunity and that could not be achieved absent the 
immunity.''

[[Page 2626]]

  This bill is an important step forward in determining whether DOT's 
antitrust policies are sound and whether the DOT gives appropriate 
consideration to the impact that the granting of antitrust immunity 
might have on competition here and abroad.
  As the evidence indicates, these immunized alliances hold great 
market power and have the potential for exercising that power to the 
exclusion of non-immunized carriers, thereby reducing competition in 
the international marketplace, as well as disrupting domestic 
competition. If these immunized mega-alliances are allowed to proceed 
unchecked, the end result may be trading government control in the 
public interest for private monopoly control in the interests of the 
industry.

                          ____________________