As the champions of competition continue to do battle over transatlantic airline alliances, it may be worth taking time out to reflect on exactly what they hope to achieve and how.
The starting point for competition concerns are virtuous enough, beginning with the rallying cry of consumer choice and vigorously contested markets. So far so good. Then comes the question of how.
A first step is to ensure that competition is fair. That means doing away with the legacy of state subsidy (and some less open protection). It also means laying down clear markers between what amounts to unfair competition and what does not, and then ensure that the borders are well policed. In short, they need to apply to aviation the same rules on predatory pricing and anti-trust that apply almost everywhere else. Washington and Brussels have made a start, if somewhat hesitantly.
Next is the question of market access and it is here that the arguments begin to get a little less clear cut. There appear to be at least two strategies in play.
Second, the authorities have sought to use their regulatory veto over alliances to open up fortress hubs. The DoT has long offered the bait of anti-trust immunity to win European open skies. EC competition commissioner Karel Van Miert has got tougher still, demanding that British Airways, Lufthansa and others surrender slots and frequencies, allowing others to break their grip on lucrative long-haul routes.
Admittedly these methods recreate market distortions, but, argues the competition lobby, they are in a good cause. What is the point of dismantling the old world of cosy national monopolies and duopolies if it is simply to be replaced by a market dominated by a handful of global alliances.
The network majors will have none of it, declaring themselves the guardians of free market economics and denouncing such measures as no more than back-door re-regulation.
Perhaps more important to ask, is whether such measures are likely to be effective. And that is by no means certain.
The BA/American Airlines ruling is a case in point. After two years of wrangling, the prospect of new competition at Heathrow seems little nearer. Even then there is no guarantee that slots will actually be surrendered. If the economics of losing slots outweighs the gains from winning full-blown anti-trust immunity (and in current nervous markets that is a distinct possibility) then BA, or any other would-be alliance builders, can simply walk away from open skies, competition approval and all, instead settling for such gains as are to be had from a looser marketing pact. In BA's case, oneworld is now to hand.
Neither is it clear that allowing a handful of new players into Heathrow or Frankfurt, each with a modest ration of slots, would really resolve the broad competition concerns.
A weighty piece of research recently handed into Brussels by the Association of European Airlines, argued persuasively that forcing the majors to give up frequencies is likely to see fares rise rather than fall across their networks.
Special pleading aside, the AEA has a point. The best competitor to challenge the dominance of a network major is another giant with its own hub network, not a series of start-ups however slick.
Lufthansa and its allies already have enough slots at Heathrow to mount an effective challenge to BA. KLM and its US partners could do the same from London Stansted. The reason that they do not and cannot, gets down to the meat - not too little regulation but still too much.
Two big hurdles remain. One is the national ownership laws (addressed in this column last month). Another is the limit on seventh freedom. Both effectively prevent an outsider from setting up shop in a rival's back yard. A genuine transatlantic open skies agreement could wash them away at a stroke, but not without some hefty political impetus.
There are signs that this is building. The DoT has recently been musing about seventh freedom, urged on by Richard Branson, who wants to bring Virgin Express to the USA.
The EC has long been pushing for the right to overwrite existing open skies bilaterals with an umbrella Europe-US agreement. That too is on Van Miert's agenda as he tackles the alliances.
The AEA members, stung by their prospective loss of slots, are also now calling for a transatlantic agreement.
It is an offer that Brussels and Washington should take up. For both competition authorities it may have much to recommend as a clever endgame to finish off their play towards more open and competitive air markets.
Source: Airline Business
