Canada authorities challenge the United/Air Canada joint venture, it’s about time


Finally, a competition regulatory authority has taken action against the growing airline joint ventures. Nothing more than an attempt to totally control prices, scheduling, profits and marketing of airline routes, is now getting a closer look from the Canadian Commission on Competition. The U.S. Department of Justice and Department of Transportation should take a look as well.

Airlines have been given extraordinary exemptions from antitrust laws inorder to help them survive. Besides the fees that they tout as the savior of the airlines, the other saving grace has been permission from Canadians, European and U.S. regulatory bodies that allows alliances to market and coordinate flights with other alliance members that have been granted antitrust immunity.

The Canadians are right on the money.

The bureau also said it was challenging three existing coordination agreements between Air Canada and United Continental.

“The current agreements between Air Canada and United Continental already allow the companies to set prices above competitive levels on all key 19 transborder routes, which alone violates the (Competition) Act,” said Melanie Aitken, commissioner of competition at the bureau.

“Making matters worse, they now want to fully merge their operations.”

The airlines, not known for any restraint in anticonsumer actions, have taken the antitrust immunity to new levels. They are now forming independent joint ventures to serve as their international arms. Basically, these joint ventures have their own board of directors, their own marketing departments and their own profits that they share according to a formula.

In the old days of alliances, taking Oneworld for example, British Airways and American Airlines competed fiercely for primary traffic between the U.S. and the U.K. Each airline, though they were alliance partners competed for business and air cargo. That kept prices down and provided travelers a choice between the two airlines at approximately the same departure times.

The initial argument made for the antitrust immunity was so that the airlines could coordinate their schedules to allow better connections, more route choices and improved frequent flyer benefits between the airlines. During the antitrust hearings, there was never a discussion of sharing revenues, coordinating airfares and management, but that is where it has gone. Plus, route choices will always be there through the normal alliance structure, without joint ventures.

This is all about money; all about reducing competition and maximizing revenues.

The new joint venture formed by BA and AA has cast all vestiges competition aside. The two airlines are planning a shuttle between Heathrow, London, and JFK, New York. Flights rather than competing with each other for passengers at approximately the same departure times will be spread throughout the day and it won’t make any difference which airline flies at what time. All profits will be shared. That way profits made from the popular late-night departure for London or the early morning flights to JFK will be mixed with the less-popular morning flights and divvied up between the airlines.

Some look at these joint ventures as a defacto merger of the international operations of various airlines. Oneworld is not alone. Delta and AirFrance-KLM with Alitalia have already finalized their joint venture. United and Lufthansa/Swiss/Austrian have a joint venture operating as part of the Star Alliance.

Three big airline organizations control 85 percent of international traffic according to Congressional testimony.

The airlines claim that passengers will benefit because they will have flights scheduled throughout the day. The Consumer Travel Alliance and many airline analysts see consumers losing because competition will be degraded and the alliance will hold a giant share of the JFK-Heathrow market.

The airlines certainly see the their international operations as their most profitable. That is where they are making their growth efforts while the draw back in the U.S. domestic market or shift more and more destinations to regional airlines.

The Canadian Commission on Competition is saying, let’s take another look at what is going on.

The carriers are already allowed to coordinate fares, schedules and marketing on transborder flights, but applied last October to take their venture a step further by combining revenues, a strategy already employed by the U.S. airline with some partners in Europe and Asia.

Canada’s Commission on Competition said it was challenging parts of the existing pact, citing concerns about higher fares and reduced consumer choice.

The case is the first to challenge an existing “immunized” alliance in the Americas, with regulators on both sides of the Atlantic having hitherto backed closer ties between members of the three global alliances that dominate the global airline industry.

Their findings will resonate across the airline world. If they agree with the airline reasoning, consumers will have less choice and less competition. If they put the brakes back on these joint ventures and constrain some of the “understandings” in the antitrust immunity agreements, consumers may find a modicum market power shifting in their direction.

In any case, this is the first strike against the current airline joint-venture free-for-all that is spreading worldwide.

  • Tony A.

    Ever since anti-trust immunity was given to alliance partners, fares  began to look  anti-competitive.
    Just take a look at Star Alliance (CO/UA-LH-AC-SN) to Europe, they are mostly all the same (and even have the same fare bases). Same with the fares of DL-KL-AF. Now even AA-BA-IB is looking more and more alike. In other words, we no longer compare fares across between individual airlines, we compare fares between alliances (or to be exact, price-coordinating partners). How do we call that increased competition? It is one thing to have Open Skies, it is another to have anti-trust immunity.