So long as air transport markets remain tightly regulated, then surely transport officials, rather than competition agencies, are best placed to rule on airline mergers and to do so in the context of the long-term drive towards a more consolidated and open industry
The proposed merger of Qantas and Air New Zealand appears to have foundered as competition commissions first in Australia and now in New Zealand have said no to the deal. Given the need for such consolidation in the airline industry and the grim inevitability of the final decisions, it would seem time to ask if those commissions should indeed have been calling the shots.
Peter Harbison, managing director of Sydney's Centre for Asia Pacific Aviation, claims the process was an exercise in futility, asking the wrong questions to the wrong bodies. He has a good point.
No one suggests that competition rules should not apply in air transport policy. Indeed, as economic regulation of airlines declines, competition law becomes ever more important. But the question is whether competition agencies should apply general rules, or transportation officials take the decision in the context of broader policy objectives.
The catch for air transport is this. Competition authorities can hardly wave through mergers unless they see evidence that there is sufficient market access for rivals to mount a challenge. Yet that is often simply not possible in a sector still hide-bound by national ownership rules and restrictive bilaterals - often put in place precisely to protect sub-scale national carriers. These issues surely need to be addressed together.
Consider what happened in Colombia two years ago. The local competition authority rejected the proposed Summa alliance only to have the country's transport authority grant it on appeal, taking a wider view of aviation policy. The same question is likely to arise in Brazil, where the integration of Varig and TAM has yet to be blessed.
The USA balances the roles of its Department of Transportation (DoT) and Department of Justice (DoJ), but arguments persist over whether that balance is in the right place. DoJ's antitrust division reviews mergers and alliances and offers advice on them, but the DoT is not bound to follow it and often does not. Congress decided in 1989 to shift this balance slightly so that unless the DoT has granted antitrust immunity, the DoJ may now challenge in court any airline alliance or merger.
Twice in the past four years Congress has toyed with changing this balance again to give one of the departments full authority, but each time let the issue lie. The argument for vesting authority in competition officials is that they are generally more attuned to the anti-competitive risks and can apply economic models to evaluate concentration levels and the like. Unlike transport officials, they are also free of the perception that they are too close or perhaps even captive to the industry that they regulate.
As the Qantas-ANZ experience illustrates, however, competition commissions lack the longer view. They must judge based on the circumstances of the day. Both the commissions in Australia and New Zealand acknowledged this, conceding that their conclusions might differ at another time.
Competition regulators are further handicapped by their limited ability to impose conditions that might make a proposal more palatable. If the trans-Tasman market between Australia and New Zealand, for example, is too concentrated to allow more airline consolidation, then competition officials can do little about reducing the barriers to entry that sit at the heart of the problem.
Transport officials, however, can indeed designate more local carriers or grant fifth freedoms to foreigners. What is more, they can also decide what fits best within the context of a broader aviation policy and also monitor a merger to see if it works the way it should.
Consider the model used to tame the privatised monopolies created by the wave of utility privatisations the 1980s. In each case an industry regulator was appointed to ensure that prices remained fair as the market was progressively opened up to new competitors.
For this to work, however, transport officials must be concerned about aviation policy rather than protecting individual airlines, and as free from political influence as their competition counterparts. Given that, and so long as air markets remain regulated, then transport officials must be better placed to steer the airline industry toward global consolidation. Once there the competition authorities can indeed pick up the baton.
Source: Airline Business
