The U.S. Department of Transportation tentatively denied Northwest Airlines' application for antitrust immunity to coordinate international pricing with Air France-KLM, the new owner of Northwest's longtime overseas partner, KLM Royal Dutch Airlines.
If the ruling results in a similar final decision next month after public comments, Northwest -- which is operating under bankruptcy-court protection -- might find itself edged out of its lucrative cross-border airline-marketing arrangement with KLM, one that boosts the two airlines' combined revenue by about $2 billion annually. Air France in 2002 received antitrust immunity to cooperate across the Atlantic with Northwest rival Delta Air Lines, and the Department of Transportation expressed concern about giving antitrust immunity to a global airline alliance with two major U.S. carriers as members.
Northwest and other U.S. carriers are increasingly seeking to build up their overseas routes, which are less prone to low-fare competition and yield higher ticket prices than those in the domestic U.S. market. Such overseas partnerships help because the airlines can participate on more foreign routes without using their own planes and crews.
The U.S. government, in its order, said it didn't believe granting antitrust immunity -- which would waive restrictions prohibiting normally unlawful collusion on routes, fares and schedules -- was required to enhance cooperation in the multicarrier SkyTeam alliance. The Department of Transportation did agree, however, that Northwest can code-share with Air France, and Delta with KLM. Code-sharing allows the partners to sell the others' flights as if they were their own, but doesn't allow them to pool and split their revenue and expenses and share sensitive pricing information as they could in a deeper alliance blessed with antitrust immunity.
In September 2004, Northwest, KLM, Air France, Delta and two other European carriers that are members of SkyTeam asked the U.S. government to essentially allow the Northwest-KLM relationship and the Air France-Delta relationship to be folded together insofar as the partnerships could cooperate on trans-Atlantic routes. AMR Corp.'s American Airlines, a founding member of the rival oneworld alliance and UAL Corp.'s United Airlines, an anchor member of Star Alliance, opposed the application. The U.S. Justice Department concluded that blessing an alliance in which Delta and Northwest could more closely cooperate risked significant harm to competition.
Both Northwest and Delta filed for bankruptcy-court protection three months ago.
Andrea Fischer Newman, Northwest's senior vice president of government affairs, said the carrier hopes the Department of Transportation will reconsider, as the potential loss of benefits from being a full member of SkyTeam would hurt Northwest's efforts to emerge from Chapter 11. She said it represents the first time the government has rejected outright a U.S. airline's request for cross-border antitrust immunity to operate a joint venture. If it stands, the decision would set a precedent that only one U.S. airline can cooperate with antitrust immunity in a global alliance, even as multiple European carriers have such permission, Ms. Fischer Newman said.
Delta also said it was disappointed. "The decision, if finalized, would be a step backwards in terms of U.S. efforts to liberalize the international aviation marketplace," said Jorge Fernandez, Delta's vice president, international and alliances.
If the ruling results in a similar final decision next month after public comments, Northwest -- which is operating under bankruptcy-court protection -- might find itself edged out of its lucrative cross-border airline-marketing arrangement with KLM, one that boosts the two airlines' combined revenue by about $2 billion annually. Air France in 2002 received antitrust immunity to cooperate across the Atlantic with Northwest rival Delta Air Lines, and the Department of Transportation expressed concern about giving antitrust immunity to a global airline alliance with two major U.S. carriers as members.
Northwest and other U.S. carriers are increasingly seeking to build up their overseas routes, which are less prone to low-fare competition and yield higher ticket prices than those in the domestic U.S. market. Such overseas partnerships help because the airlines can participate on more foreign routes without using their own planes and crews.
The U.S. government, in its order, said it didn't believe granting antitrust immunity -- which would waive restrictions prohibiting normally unlawful collusion on routes, fares and schedules -- was required to enhance cooperation in the multicarrier SkyTeam alliance. The Department of Transportation did agree, however, that Northwest can code-share with Air France, and Delta with KLM. Code-sharing allows the partners to sell the others' flights as if they were their own, but doesn't allow them to pool and split their revenue and expenses and share sensitive pricing information as they could in a deeper alliance blessed with antitrust immunity.
In September 2004, Northwest, KLM, Air France, Delta and two other European carriers that are members of SkyTeam asked the U.S. government to essentially allow the Northwest-KLM relationship and the Air France-Delta relationship to be folded together insofar as the partnerships could cooperate on trans-Atlantic routes. AMR Corp.'s American Airlines, a founding member of the rival oneworld alliance and UAL Corp.'s United Airlines, an anchor member of Star Alliance, opposed the application. The U.S. Justice Department concluded that blessing an alliance in which Delta and Northwest could more closely cooperate risked significant harm to competition.
Both Northwest and Delta filed for bankruptcy-court protection three months ago.
Andrea Fischer Newman, Northwest's senior vice president of government affairs, said the carrier hopes the Department of Transportation will reconsider, as the potential loss of benefits from being a full member of SkyTeam would hurt Northwest's efforts to emerge from Chapter 11. She said it represents the first time the government has rejected outright a U.S. airline's request for cross-border antitrust immunity to operate a joint venture. If it stands, the decision would set a precedent that only one U.S. airline can cooperate with antitrust immunity in a global alliance, even as multiple European carriers have such permission, Ms. Fischer Newman said.
Delta also said it was disappointed. "The decision, if finalized, would be a step backwards in terms of U.S. efforts to liberalize the international aviation marketplace," said Jorge Fernandez, Delta's vice president, international and alliances.
