Blue Skies ahead as Delta, KLM, Air France, Virgin Atlantic receive ATI approval

It only makes sense that the Department of Transportation tentatively approved the latest antitrust immunity (ATI) request. After all, the mutual ownership blend across Delta Air Lines, Air France/KLM and Virgin Atlantic lends itself to coordination of operations, marketing and pricing efforts. The DoT did hold back a tiny bit, though it is unlikely that will be sufficiently consolatory for the parties that objected to the deal.

Pending the outcome of any objections filed (which are unlikely to change the DoT’s position), the four airlines will have six months to implement their joint venture agreement and commence the immunized operations. Given that the deal is a consolidation of two other ATI/JV packages that should be a trivial deadline to meet. Alitalia and Czech Air are out on the deal, as expected. Slightly unexpected is the duration of the approval. The new “Blue Skies” deal is only valid for five years. The recently approved Qantas/American Airlines ATI received a seven year approval; prior deals often received 10-year lifespans.

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Somewhat telling in the DoT’s Order regarding the ATI approval is the detail on methodology for evaluating the impact of a deal. Specifically, the focus is always on “incremental change” rather than the overall competitive landscape (emphasis mine):

When conducting a competitive analysis, we typically examine the incremental change in competition resulting from a transaction. For example, we look at the incremental change in market share that the proposed alliance would create, and if that position would create a dominant position in the market or allow the alliance to engage in other anticompetitive behavior, such as charging supra-competitive prices or excluding competitors. In this instance, since Delta already possesses bilateral immunity with Virgin on the one hand, and Air France/KLM on the other, all transatlantic routings of the Amended JVA are currently immunized under existing authorities. As such, this transaction would cause no significant change in the competitive situation in the transatlantic market, since, as JetBlue concedes, almost all of the cooperation contemplated under the Amended JVA (and all of the transatlantic cooperation) is already immunized under existing agreements. Conversely, denying the motion would not reduce the concentration levels about which JetBlue raises concerns.

For the avoidance of doubt, we examined market shares between the United States and UK, and between the United States and continental Europe. We found that the Amended JVA would not change the market share of the proposed alliance, nor would it result in a dominant position vis-à-vis the other alliances in the market.

In short, the Department of Transportation ruled that the current market sees sufficient competition and that the existing three ATI agreements deliver sufficient consumer benefits to justify their continued existence.

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The Objections

JetBlue objected to the ATI application, suggesting that a broader review was necessary in light of the limited access available to scarce landing slot resources at Heathrow and Schiphol. The DoT dismissed the Heathrow concerns outright because the new partnership is still the smallest of the three at the airport:

At LHR, the incremental gain in slots will result in an approximately 10 percent share of slots for SkyTeam. This would not result in a meaningful change in SkyTeam’s market share at LHR and would be unlikely to result in competitive harm. The SkyTeam alliance would remain the third-largest alliance at LHR and continue to face competition from alliances with larger slot portfolios, particularly the Oneworld alliance.

At Amsterdam the DoT acknowledges the concentration of resources into the alliance with the bulk of the operations, but also deemed the divestiture of five daily slot pairs at AMS – specifically for intra—Europe service – to be a sufficient remedy. That does not directly address the concerns of JetBlue as it seeks to launch its transatlantic services in early 2021, but regulatory relief will not be the way in to these congested airports for the carrier. The only win JetBlue can claim is that the DoT will revisit the order in five years, though it seems unlikely anything will change based on the competition standards in use.

A second objection was filed by Travel Fairness Now (TFN). The organization argues that Delta works “to block access to publicly available flight information and have made it difficult for consumers to find lower fares and see all available flight options.” TFN also notes that Delta continues to push its partners away from offering private fares to consolidators or OTAs, further reducing options and value to consumers. In its petition TFN requests that the DoT prohibit “the Joint Applicants from jointly or collectively restraining the distribution of airline fare, schedule, and availability information by online travel agencies (OTAs) or metasearch sites.”

The DoT evades this direct request, instead noting that it encourages ATI-approved ventures to coordinate sales and distribution practices and that “It would be contrary to the Department’s policy of promoting fully-integrated joint ventures” to prevent such work. Rather than requiring that the Blue Skies group of carriers continue to actively share its coordinated fare data the DoT allows the group to further reduce options to the public, so long as it does so in a coordinated manner across the group.

What’s Next?

Within a few weeks the order will become final and the airlines should effect their new operations. By next Spring Czech Air and Alitalia will be out of the JV and the fares will adjust accordingly.

For consumers little will change. That seems to be the goal of regulators, with the competitive situation deemed sufficient. Despite evidence that fares go up in the hub-to-hub markets, the data suggests that connecting passengers do generally see a reduction in costs thanks to the ATI/JV deals. Or due to other reasons but correlative with these ATIs. Either way, they’re here to stay for a while.