This is what US transportation officials have wanted. But as representatives of the nine countries - Switzerland, Belgium, Austria, Sweden, Norway, Denmark, Finland, Luxembourg and Iceland - arrived in Washington in mid-February to negotiate the treaties, it became apparent that most of them want more than mere liberalisation. They want what the only other US trading partner with formal open skies, the Netherlands, got for KLM's alliance with Northwest Airlines: anti-trust immunity. This could be more than the US bargained for.
What was bargained for was the use of the nine-country proposal as a model for other open skies agreements that presumably will follow. Based on the US-Netherlands bilateral, the document says nothing about anti-trust immunity but does discuss code-sharing in more detail than the wording in a bilateral.
The language was gleaned from the Austrian-US agreement negotiated last year, but contains an additional paragraph that attempts to protect US airlines' rights to code share to third countries. This would apply whether or not the US carrier in question has a strategic alliance with an airline in the trading partner country.
The third-country code-sharing issue may be more a symbolic than a practical issue with regard to the nine countries. Most US airlines have all the access they need, either directly or through code-sharing alliances that are already treated liberally by most of the countries. United Airlines, for example, already operates to six of the nine countries via Germany, benefiting from its code-share alliance with Lufthansa.
This underlines the belief of Cyril Murphy, United's vice president of government affairs, that the nine-country proposal 'is politics. The reality is that nothing is going to change in the marketplace, and without that there will be no pressure to change anyone's behaviour.'
However, the countries in question and Delta Air Lines, which has a trilateral code-sharing alliance with Swissair and Austrian Airlines, would tend to disagree. Particularly if they are pursuing an anti-trust exemption that many people believe is a key to the success enjoyed by allies Northwest and KLM. Sources say that, with the exception of Luxembourg and Iceland, all the countries being targeted for open skies by the US want the anti-trust exemption for their airlines that are allied with US carriers.
This appears to be the next logical step of the code-sharing trend. Findings from two code-sharing studies conducted in the US suggest that strategic alliances across the Atlantic are significant revenue-boosters if others do not have the same critical mass. Since all the US majors except American Airlines now have major code-sharing alliances, advantages will increasingly be sought in an area to which most do not have access: anti-trust immunity. Much as airlines have frantically pursued strategic partners to 'level the playing field,' they are now going to pursue anti-trust immunity to eliminate the gap completely.
Whether there are true benefits from anti-trust immunity is debatable. During February open skies negotiations between the US and Canada, Canadian officials brought up the subject of an anti-trust exemption for Air Canada and Canadian International, in their respective alliances with Continental Airlines and American.
However, US Department of Justice officials rebuffed the suggestion, saying that granting freedom for joint pricing and marketing initiatives - à la KLM and Northwest - was not necessary because the alliance structures already allowed a high degree of co-operation. Besides, the Canadians were told, immunity has only been awarded in the context of a broad open skies arrangement that was not qualified by anything like the phase-in period that Canada is demanding. Also, the DOT has approved all proposed code-sharing alliances and no one has been charged with violating anti-trust laws: KLM-Northwest may have immunity, but they don't need it.
This is of small comfort to the alliances without anti-trust immunity, which liken the situation to the 1980s when DOT did not see a merger proposal it did not like. Delta officials talk of the need to remedy the potential 'two caste' airline industry - made up of those with and without immunity. And at United, Murphy says that the Northwest-KLM immunity 'is increasingly a real competitive disadvantage.' Indeed, sources say that a soon-to-be-released US General Accounting Office analysis of codesharing finds that anti-trust immunity is 'definitely a benefit' and could be used by the US as a 'substantial carrot' in its pursuit of open skies arrangements with other countries.
This all puts the DOT in a difficult position. Sources say that justice department officials do not want to give out anti-trust exemptions, and would just as soon revoke the immunity bestowed upon the Northwest-KLM alliance towards the end of the Bush administration. And anti-trust immunity is a politically sensitive issue and of particular concern to labour groups.
Paul Gretch, director of DOT's office of international aviation, believes anti-trust immunity has been a key advantage for Northwest and KLM. But for the nine-country proposal, he hedges, saying that 'anti-trust immunity is tied to individual facts and agreements.' He does allow, however, that DOT 'is willing to consider applications of individual carrier alliances [for immunity].'
DOT's response will soon be seen, as US negotiators are attempting to hammer out the nine separate open skies agreements by the end of March. If anti-trust immunity is sought and granted, the 'theory' that a block of small European countries can have a major impact on the industry will not be crazy after all.
DOT's response will soon be seen, as US negotiators are attempting to hammer out the nine separate open skies agreements by the end of March. If anti-trust immunity is sought and granted, the 'theory' that a block of small European countries can have a major impact on the industry will not be crazy after all.
Source: Airline Business
