Continental allowed to join Star Alliance immunity pact

The Department of Transportation ignored a recommendation from the Department of Justice that Continental Airlines not be allowed to join nine other Star Alliance carriers in recieving antitrust immunity on international routes, and instead granted it permission earlier today. (Thanks for the heads up from Airline Route.)

The airlines (Air Canada, Austrian, bmi, LOT, Lufthansa, Scandinavian, Swiss, TAP, United and now Continental) can benefit from "limited and carefully considered" antitrust immunity on international routes, saying that "the transaction will not substantially reduce or eliminate competition."

In its ruling, the DOT also stated that the Continental's joining "does not materially alter the competitive landscape or increase overall market share to any significant degree," noting that Continental's move to Star allows for "a more competitive alliance in markets where oneworld or SkyTeam have a strong presence."

The DOT also noted that Continental currently overlaps with other Star carriers in fourteen city-pair markets, but stated that creating "carve outs" (routes that are not covered by the antitrust immunity) would "detract from the efficiencies that the alliance would otherwise create." Existing "carve outs," such as Chicago-Frankfurt, Washington-Frankfurt, San Francisco-Toronto and Chicago-Toronto, are still in effect. As for domestic competition (especially with United), the DOT concluded that "the benefits of the alliance outweigh the comparatively small risk of harm that could occur in domestic markets."

Of course, the whole argument of alliances being good for the consumer only stands if "metal neutrality" is practiced. "Metal neutrality" is when airlines that jointly market services aren't picky about who actually operates the flight (and thus keep more of the revenue). For example, if I wanted to fly from Boston to Frankfurt as seamlessly as possible, I could take a direct Lufthansa flight, or instead fly United through Washington Dulles. If I book my ticket with United Airlines, under "metal neutrality" they'd put me on the Lufthansa flight, even though they'd make much less money than if they put me on their flight through Washington. If things are kept metal-neutral, the DOT argues, then carriers won't spend time worrying about making sure that a passenger flies on their airline; instead, they can work on syncing their flight schedules and sharing financial benefits and losses, which give them incentive to make things as convenient as possible to the passenger.

photo by James Willamor on Flickr, licensed under the Creative Commons