DOT requires virtually no carve-outs in tentative Star approval

Washington DC
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US regulators in their tentative approval of anti-trust for the establishment of a joint venture among four Star Alliance members are requiring virtually no substantive changes to the carrier's existing networks.

Air Canada, Continental Airlines, Lufthansa and United Airlines won preliminary approval today for their joint venture, which they must launch within 18 months.

The carriers sought approval for their partnership in July 2008 after Continental decided to exit the SkyTeam Alliance in favour of Star following the planned merger of Delta Air Lines and Northwest Airlines. Continental expects to officially exit SkyTeam in October.

To reduce anticompetitive effects triggered by past tie-ups of global carriers DOT has requested carve outs - prohibitions of those carriers from coordinating the sale of tickets to a defined group of passengers, particularly time-sensitive travellers most likely to fly nonstop flights. DOT explains those passengers are most likely to feel the brunt of reduced competition.

DOT essentially ignored protests by Delta Air Lines and Canadian startup Porter Airlines to preserve existing carve outs in a United-Lufthansa agreement, and the addition of others.

The existing carve-outs required under the United-Lufthansa deal from Chicago/Washington - Frankfurt are being eliminated. DOT says it has tentatively decided to preserve current carve outs on the Chicago/San Francisco-Toronto flights.

DOT explains its analysis shows the proposed Star agreement creates a share shift of 8.5 percentage points, which is equal to Continental's share in the transatlantic market.

The Star carriers do surpass SkyTeam in achieving the highest share in that market at 31.7%, leading SkyTeam's 28.4% market share by 3.3 percentage points.

Even as Star moves ahead of SkyTeam in transatlantic market share DOT reasons "the state of inter-alliance competition remains largely unchanged. The transaction does not materially alter the current competitive landscape or increase overall market share to any significant degree".

In endorsing the Star Alliance joint venture DOT says: "With Continental, Star becomes a more competitive alliance in markets where Oneworld or SkyTeam have a strong presence."

Analysis by DOT shows that for all the US-EU markets, Star's proposed tie-up increases inter-alliance competition in five of the ten largest country-pair markets - France, Ireland, Italy the Netherlands and Spain. Immunized Star carriers would enlarge their existing strength in six current Star country-pair markets - Denmark, Germany, Norway, Portugal, Switzerland and Sweden.

But DOT argues SkyTeam also saw a similar trend in its existing strongholds after it was granted anti-trust immunity last year.

Overall DOT believes where the proposed Star deal "materially reduces the number of competitors, as it does in a small number of markets, the particular facts and circumstances of this case indicate that consumers will not be harmed".