On July 17, Georgetown University hosted an Airline Competition Conference, where leaders in and experts on the aviation industry came to discuss upcoming trends and issues facing airlines. In one of the panels held that day, Case Studies and Consumer Benefits, several panel members discussed the effects of joint ventures and alliances between airlines, and how they are affecting fares and air traffic, along with consumer welfare and interest. Each speaker is an expert on this issue.
Among these five speakers present at the panel were the president of the American Antitrust Institute, Diana Moss, Vice President of Compass Lexecon, Darin Lee, the University of Florida Irvine’s Chancellor Professor of Economics, Jan K. Brueckner, along with Bryan Keating and Mark Israel of Compass Lexecon.
Starting off, Professor Brueckner discussed the economics of airline alliances, and how these joint ventures affect both ticket prices and routes. One of the major points of his discussion was explaining how airlines who utilize these alliances are able to charge higher fares due to extended routes. On the business side of this debate, there are worries about how antitrust immunity alliances affect have a negative or positive affect on competition between airlines. On transatlantic routes, for example, an alliance partner may raise fares by reducing the number of seats sold.
Dr. Moss was the second to speak and further discussed how these anti-trust immunity alliances change the competitive landscape between airlines. Even though she explained that alliances increase networks and eliminate double margins, they also destroy competition between non-alliance airlines. The divide has continued to grow, as of 2014, alliance airlines carry about 80 percent of international traffic. Aware of the costs of these alliances, Dr. Moss proposed to the audience policies that could be implemented to improve competition between alliance and non-alliance airlines. Specifically, she wanted to increase the number of alliances to compete against larger ones such as United, Skyteam, and Star. This way, alliance airlines would be competing between each other instead of competing with themselves.
Next, Darin Lee came forward to discuss the direct consumer issues related to this topic. Instead of condemning joint ventures, Lee discussed how these alliances have had a positive effect. Described as metal neutral joint ventures, these alliances are similar to mergers in that the partners act as a single company. Along with acting on the same schedules and pricing, the partners also share the revenue from the flights. When regulators offer new anti-trust immunity grants, neutral joint ventures is a condition they need to see. Utilizing a study on Air New Zealand’s joint ventures, Lee demonstrated that not only did the alliance increase the airline’s network, but also created competition between other joint venture airlines. Anecdotal evidence also suggests that passengers are benefitting from robust competition in the transatlantic market as fares have begun to decrease.
Mark Israel further discussed the effects joint ventures and antitrust immunities have on airlines but focused more on connecting trips and non-stop flights. Like Lee, Israel pointed out the major benefits of these alliances, and how there is no negative effect on competitors. Antitrust immunities allow airlines to communicate fares, but not align their agendas. According to Israel, the creation of ATI’s and JV’s led to an increase in the number of segment passengers on the route on which the ATI/ JV members operated.
Finally, Bryan Keating rounded out the panel with his discussion on how economic incentives, provided by joint ventures and immunity, affect how airlines systems. Along with lower fares, joint venture alliances create other non-price benefits, such as new routes and destinations, improve flight schedules, higher output, lower fares, and increased demand. There are also increases in new, non-stop flight, as well as improving overall results because of these incentives. Another benefit Keating brought up was that partners are incentivized to eliminate wing tip to wing tip flying and offering multiple departures and arrival times.
When the panel was opened up for questions. When asked about the need to regulate airline alliances, Mark Israel stated that the situation was simply one product, unaffiliated airlines, competing against a superior product, the affiliated airlines. Through further discussion, points were brought up that airline traffic and entry were going up on anti trust immunity affected airlines, as well as unaffected airlines.