The US precondition of Open Skies before it will grant antitrust immunity is about to face a challenge.
Andrea Conesa, Aeromexico’s chief executive, has outlined that his carrier plans to apply around the first quarter of 2015 for US antitrust immunity to cover its joint venture with Delta Air Lines. Delta’s president, Ed Bastian, adds that: “We still need to get that filed and get that authorised.” Aeromexico and Delta will also seek immunity, says Conesa, from Mexico’s Federal Competition Commission.
This follows negotiation in November of a revised USA-Mexico air services bilateral. Conesa says he hopes to secure US antitrust immunity before the revised bilateral takes effect in 2016.
The significance of this move is that officials in both countries acknowledge that the new bilateral between Mexico and the USA grants unlimited third and fourth freedoms, but does not, because of fifth freedom limits, create Open Skies. US Department of Transportation (DOT) officials have often stated that they will not entertain an antitrust immunity application in the absence of Open Skies. Aeromexico and Delta obviously intend to challenge this.
Open Skies have become for DOT regulators a shorthand way to ensure that immunising a joint venture does not foster or create a monopoly. Open Skies ensures that rival airlines have a chance to enter the same market and compete against the joint venture. In antitrust parlance, an Open Skies bilateral removes barriers to entry.
Only in the case of Canada has the DOT departed from this policy, or more precisely, allowed an early exception during the evolution of this policy. It immunised American Airlines-Canadian Airlinesand United-Air Canada alliances at a time when the USA and Canada had a liberalised bilateral but not Open Skies.
Michael Goldman, Washington DC aviation lawyer, predicts that Aeromexico and Delta will cite the Canadian examples as precedent for granting immunity to their joint venture. In both Canada and Mexico, they may argue, the liberalised bilaterals provide unrestricted third and fourth freedom traffic rights, which remove the barriers for entry by rival carriers. Both Canada and Mexico are also partners with the USA in the North American Free Trade Agreement (NAFTA). Moreover, unlike trans-ocean international markets, other transportation modes compete with air transport between the USA and both Canada and Mexico.
Based on these conditions, Goldman predicts: “They will probably argue that North America is different and that a model Open Skies agreement should not be needed to grant antitrust immunity for third and fourth freedom USA-Mexico services.”
If the DOT accepts these arguments, this has implications for future immunity cases. Even though Aeromexico and Delta may claim, and the DOT may declare that North America is a unique market, the next application from a carrier outside of North America will certainly argue that it is not.
That argument could come from somewhere such as China or Hong Kong, where carriers feel disadvantaged by the lack of antitrust immunity for their US joint ventures. As Goldman points out, the USA-China bilateral still limits third and fourth freedom frequencies, so it would be hard for any Chinese carrier to argue for antitrust immunity. But Hong Kong is a closer call. Like the Mexican and Canadian bilaterals (at the time of DOT’s Canadian decisions), the USA-Hong Kong bilateral limits fifth freedoms, but allows open third and fourth freedoms.
In the event of an immunity request from, say, Cathay Pacific, the issues would be whether competition between trans-Pacific airlines, which use some fifth freedoms, is comparable to competition within North America, where generally they do not, and whether other entry barriers or competitive conditions would restrict rivals in one market more than the other. In any event, DOT will have opened the door for entertaining such immunity applications in the absence of Open Skies, thus forcing it to look at all these competitive conditions on a case-by-case basis.
Finally, lurking in the background of the Aeromexico-Delta case is a different issue -- whether Mexico will ratify the new bilateral if DOT does not grant antitrust immunity. Negotiations over the bilateral stalled when Mexico demanded that the agreement expressly give immunity to the Aeromexico-Delta joint venture. US negotiators responded by explaining the difference between negotiating air services and granting antitrust immunity.
As Goldman observes, “this is a distinction well-understood within the Washington community – where one is an intergovernmental negotiation and the other a regulatory proceeding -- but is sometimes misunderstood by foreign parties and governments.”
Mexico backed down and initialed the agreement. But it still could adopt what has become an informal practice by nations entering liberal bilaterals with the USA. Instead of approving the new deal outright, Mexico could delay ratifying it until it sees if the DOT grants immunity to Aeromexico-Delta. How much will the prospect of Mexico rejecting the new bilateral influence DOT’s decision on the Aeromexico-Delta application for antitrust immunity? In a perfect world, aeropolitics obviously would play no role in a regulatory analysis of competition.
Source: Cirium Dashboard
