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US-China route gets special treatment in Continental-Star Alliance ruling

13-Jul-2009

The US Department of Transportation's ruling to grant antitrust immunity for Continental Airlines’ membership of the Star Alliance carries some specific treatment for routes where competitive concerns exist. In addition to the trans-Atlantic carve outs, there were similar restrictions placed on a handful of trans-border routes, as well as from any US city to Beijing, where currently only limited competition exists.

This will also, presumably serve to add some pressure on continuing US-China talks, where China continues to be reluctant to liberalise.

US-China route

The following extract is taken from Docket OST-2008-0234 (Download the Docket.)

As DOJ has noted, United and Continental have no nonstop overlaps on non-transatlantic city pairs. DOJ nonetheless raises competitive concerns about certain US-China markets involving connections in the United States, because no other US carriers operate nonstop service from the US to either Beijing or Hong Kong.

While both Delta and US Airways currently are authorized to serve Beijing nonstop from the United States, neither has chosen to enter the market yet, each having requested delays due to the global economic situation. Unlike Beijing, which is a limited-entry market, the US-Hong Kong market has no entry restrictions on flights between the United States and Hong Kong. Given the number of connecting service options available involving both US and foreign carriers, we do not believe that a reduction in the number of competitors in relatively small connecting markets will significantly affect consumers.

As outlined in the Show Cause Order, the Department has consistently allowed immunized cooperation in third-country markets, even in the absence of an open-skies relationship between the United States and the third country, as a means of enhancing competitive forces and encouraging additional liberalization.

We recognize the potential scarcity of entry opportunities in some markets, but without stronger evidence of competitive harm, we have been reluctant to jeopardize network benefits by limiting the points served.

The Department believes that the necessary competitive forces should be available, in the form of new nonstop US-China service, should fares increase. In considering DOJ’s arguments about potential competition in certain markets in this case, however, the Department is modifying its tentative conclusions and imposing a carve out in the US-Beijing market, in the particular circumstances of this case, until additional competing service is introduced. The Department will place this limitation on immunity until a US carrier that does not have antitrust immunity with any applicant in this proceeding initiates nonstop service between a point in the US and Beijing, and sustains that service with a minimum of five weekly roundtrip flights for more than nine months, subject to the Department’s concurrence that these conditions have been met.

In contrast, the Department does not believe a carve out is necessary in the Hong Kong market, as entry there is not restricted.


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