Sunday, July 12, 2009

Continental Drift

So, Continental Airlines this week won limited antitrust immunity from the U.S. Department of Transportation so it can it can launch a trans-Atlantic marketing and code share operation with three members of the Star Alliance: United Airlines, Air Canada and US Airways.

If the hook-up works as it's supposed to, consumers could benefit from coordinated schedules and access to partner airlines' airport lounges. Fares could fall, too, provided the deal helps the airlines reduce their operating costs - and crucially, that the cash-strapped carriers pass on some of those savings to consumers. Will they? I'd say definitely maybe.

Continental, which is withdrawing from the SkyTeam alliance led by Air France and Delta/Northwest, will join the Star Alliance on Oct. 25. That will allow Houston-based Continental to cooperate more broadly with the 20-plus Star members, in addition to the deal it has cut with the three aforementioned North American members of Star.

Star and SkyTeam are two of the three global airline alliances that have sprung up over the past 15 years; oneworld, led by American Airlines and British Airways, is the third big alliance.

Why should you care? Isn't this just inside-baseball, airline style?

No. These arrangments - which allow airlines to coordinate schedules, allow passengers to earn reward points on partner airlines and share airport lounges - can benefit travelers by making travel more truly global and eliminating inconveniences, like the need to change terminals when pressed for time to make a connecting flight. Oneworld members have moved from four terminals at London's Heathrow aiport, for example, into just two, while Star carriers have moved under one roof to share single terminals - check-in, lounges and gates - at Tokyo Narita and Beijing Capital airports. This is a real convenience for air travelers.

The three major airline alliances are actually substitutes for outright mergers. Airlines have wanted to merge into fewer but stronger carriers for years. But issues of antitrust, national security and national pride have kept most mergers from happening, especially cross-border actions. A few recent exceptions: Air France/KLM and Lufthansa/Swiss.

Objections to mergers are to some extent red herrings. Governments can commandeer aircraft in time of war, and while having a high-profile national flag carrier was heady stuff in the pioneering days of civil aviation just before and just after World War II, major airlines girdle the globe now and their branded aircraft are common sights on the runways of the world.

Antitrust issues are another story. When the USDOT gave the go-ahead for a trans-Atlantic deal to Continental and its partners, it made certain to scrutinize fares on certain routes where the carriers overlap. The department also stipulated that member airlines must report on their alliance activities every year to government regulators.

As it stands, alliances are halfway measures, but they do some good things. The outmoded rules limiting foreign ownership of airlines - only up to 25 percent in the U.S., for example - should be scrapped; they are outmoded in today's globalized world. In the meantime, consumers can benefit from the increased flexibility that global alliances give to airlines. Simply put, parliaments and regulators should take the protectionist blinders off and allow airlines to operate like other modern businesses.

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