U.S. air carriers are required to submit cooperative service agreements that they have with each other, such as reciprocal code sharing, joint frequent flyer and lounge access, and joint marketing, to the Department for review before they implement those agreements. 49 USC 41720. The Department does not approve or disapprove the agreements. Rather, the Department reviews the agreements to ensure that they would not harm the public and are not anti competitive. The Department can take action under its statutory authority to preserve competition under 49 USC 41712.
U.S. carrier relationships with foreign airlines play a major role in the U.S. aviation industry's participation and competitive position in the "global" marketplace. A study by the Office of Aviation Analysis served as the economic basis for development of the Department's international aviation policy to encourage international alliances and spread deregulation's benefits to world markets. As a result, there has been considerable growth in U.S. carrier code-sharing arrangements with foreign airlines as well as growth in the more comprehensive U.S. carrier alliances (cooperative service and marketing agreements) with foreign airlines.
The alliance agreements, which nearly always include a code-sharing component, are frequently accompanied by requests for relief from the antitrust laws, which otherwise might prevent the carriers from cooperating on certain aspects of their joint services, such as fares and capacity, as though they were a single airline. Major code-sharing and alliance arrangements require careful examination in terms of their impact on competition in both domestic and international markets.
The Office of International Aviation processes U.S./foreign carrier code-share applications and maintains a list of code-share arrangements between U.S. and foreign carriers. The Office of Aviation Analysis is responsible for processing applications for antitrust immunity and maintains a list of all immunized alliances.
Major U.S. and foreign air carriers may, under 49 U.S.C §§ 41308-41309, request a grant of immunity from the U.S. antitrust laws to operate certain commercial alliances. Immunity allows these airlines to coordinate their fares, services and capacity as if they were a single carrier in these markets, subject to certain conditions.
When evaluating these applications, we normally engage in a two-step analysis of foreign air transportation agreements submitted for our approval.
- We first determine under § 41309(b) whether the agreements are adverse to the public interest because they would substantially reduce or eliminate competition (the “competitive analysis”). If we make that affirmative determination, § 41309 (b)(1)(A) directs us to decide whether they are nevertheless necessary to meet a serious transportation need or to achieve important public benefits; U.S. foreign policy goals are a key element of these benefits. If we make that finding, and also find that those public benefits cannot be met or achieved by reasonably available and materially less anticompetitive alternatives, we must approve the agreements pursuant to § 41308(b). Section 41309(c)(2) provides that a party opposing approval has the burden of showing that the agreement or request would substantially reduce or eliminate competition and that less anticompetitive alternatives are available. On the other hand, the party seeking approval of the agreement or request must establish the transportation need or public benefits.
- If, however, we do not find the agreements to be adverse to the public interest, § 41309(b) directs us to approve them. In that event, we next decide whether there are sufficient public benefits to grant immunity under 49 U.S.C. § 41308(b) (the “public benefits analysis”). In that subsection, Congress has given the Department the authority to exempt airlines from the antitrust laws to the extent necessary to allow a proposed transaction to proceed, provided that the exemption is required by the public interest. While the public interest determination under both §§ 41309(b) and 41308(b) entails a comparison of anti-competitive effects and public benefits, the standard in § 41308(b) (“required by” rather than “not adverse to”) is higher.
A grant of antitrust immunity is not automatically given to applicants. Moreover, an alliance which has received immunity is required to comply with the operating constraints and reporting requirements specified in the final order.
Two major studies by the Office of Aviation Analysis were instrumental in developing the Department's ongoing policies regarding international alliances:
- Global Deregulation Takes Off (1999)
- Transatlantic Deregulation - The Alliance Network Effect (2000)
The Office has also engaged in a joint study of transatlantic airline alliances with the Directorate General of Competition for the European Union.