Antitrust Immunity for Airline Alliances

The market developments in international air transportation have led to the dominance of three global airline alliances - Star, SkyTeam and oneworld. At the same time, members of these alliances receive increasingly more freedom in coordinating various aspects of joint operations, including scheduling and pricing decisions as well as the right to form revenue-sharing joint ventures in international markets. Although the significant consumer benefits generated by airline cooperation are undisputed, the recent developments raise antitrust concerns. Against this background, the paper aims at comparing the identified key competitive effects of airline alliances and antitrust immunity with the economic lines of reasoning in recent policy actions to develop recommendations for a full-fledged assessment of antitrust immunity for airline alliances. Our conclusions are the following. First, the frequently postulated lower prices due to removal of double marginalization following antitrust immunity are not obvious from the theoretical point of view, and can be realized within a partnership without such immunity. However, the same conclusion might not be true for certain other types of immunity-specific efficiencies. Second, antitrust immunity might influence non-price characteristics of airline markets (with ex-ante ambiguous welfare effects). Third, antitrust immunity can inhibit individual partner airlines' network development, facilitate (tacit) collusion and lead to foreclosure of the interline markets for airlines from competing alliances. Fourth, approval conditions such as carve-outs have ambiguous welfare effects as they might keep up competition on overlapping routes but at the same time forecloses the realization of certain immunity-specific efficiencies. Fifth, while in the US the institutional structures behind antitrust immunity investigations should be reformed, the EU has to work on the internal procedures to speed up decision making.

Bilotkach, Volodymyr and Kai Hüschelrath (2010), Antitrust Immunity for Airline Alliances, ZEW Discussion Paper No. 10-080, Mannheim, published in: Journal of Competition Law and Economics.