DOT’s final ATI approval for Star expands carve-outs

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After requiring virtually no carve-outs in its tentative approval of antitrust immunity among members of the Star Alliance, the US Department of Transportation has expanded the number of city pairs excluded from immunity in its final approval of the agreement.

Earlier this year in April the department awarded tentative approval of broad antitrust immunity among 10 Star carriers including prospective member Continental, who plans to transition from SkyTeam to Star in October.

DOT also gave a tentative nod to a proposed joint venture among Air Canada, Continental, Lufthansa and United.

At the time it awarded tentative approval DOT reasoned few carve-outs - cities exempted from antitrust immunity to preserve competition - were necessary. The agency also said existing carve-outs under a current United-Lufthansa tie-up from Chicago/Washington-Dulles to Frankfurt would be eliminated. Other existing carve-outs from Chicago/San Francisco to Toronto would remain in effect.

But more carve-outs are included in the final order granting approval after the US Department of Justice filed comments late last month arguing competition would be weakened in specific city pairs if DOT firmed up its tentative approval.

"In reviewing the record in light of DOJ's concerns, the Department has decided that certain additional carve outs are appropriate, in the particular circumstances of this case, to render the grant of immunity no broader than necessary to achieve substantial public benefits," DOT explains.

That translates to the establishment of carve-outs from broad antitrust immunity granted among the 10 members in four transatlantic markets - New York to Copenhagen, Geneva, Lisbon and Portugal. The exclusions disappear if a new entrant enters any of the markets with at least five roundtrips per week for nine consecutive months.

DOT did not endorse Justice's arguments that no evidence exists to support dissolving current carve outs from Chicago and Washington to Frankfurt, upholding its decision to eliminate the restrictions once the joint venture is complete. New carve-outs for US transborder markets include Cleveland-Toronto, Houston-Calgary, Houston-Toronto and New York-Ottawa as DOT explains competition in those markets under ATI would be reduced from two carriers to one. Like the transatlantic carve-outs, DOT explains their elimination depends on a new entrant introducing five weekly flights and operating the service for nine consecutive months.

Addressing some of DOJ's concerns over ample competition on Chinese routes, DOT is requiring a carve-out in the US-Beijing market until a carrier that has no ATI with Star carriers introduces service. Both Delta Air Lines and US Airways have chosen to postpone new service to Beijing as a result of the economic slowdown.

Reiterating its position issued in April DOT says: "We tentatively found that a grant of antitrust immunity was required by the public interest. We have not been persuaded to change those findings."