Over the past 20 years, US officials have never missed an opportunity to utter their contempt for the tariff conferences that the International Air Transport Association holds for member airlines. The meetings, during which fare ceilings for international travel are set, have been exempted from antitrust laws since 1945. But since US airline deregulation, officials in the US Transportation and Justice departments have tried subtle and overt means to revoke the immunity.

The efforts continue unabated. Most recently, Department of Transportation officials have seen a vehicle in the efforts by allied carriers United and Lufthansa, as well as the quadrilateral grouping of Delta, Austrian, Sabena and Swissair, to get their own antitrust immunity. The idea is that if US carriers are forced to leave the cartel, a fatal blow will be driven through Iata - at least in the realm of price-setting over the Atlantic. Indeed, an Iata official says plainly that 'there wouldn't be much incentive for airlines to come to these conferences if half the competition doesn't show up.'

Though this demand was, by early May, dropped by Justice Department officials as a caveat in rubber-stamping the immunity, DOT began ruminating on the requirement - with every indication that approval of the applications will happen. Sources say that in the lead-up to the tentative open skies agreement between Germany and the US, Lufthansa officials specifically asked the DOT if the US would demand that Lufthansa drop out of the tariff-setting conferences. The answer was no, contradicting Germany's and Lufthansa's assumptions.

The main point for Lufthansa, as well as every other carrier being considered for immunity, is that neither Northwest nor KLM, allied and immunity-protected, have ever been required to drop out of the conferences. 'It's a pretty emotional issue,' says a source close to the discussions. 'How does the DOT define "public interest?" Isn't there already an alliance out there that hasn't been given the same demand?'

Sources say that in the lobbying effort leading up to the immunity decision, carriers like Delta and United have made it clear that they expect that when the KLM-Northwest alliance goes up for renewal next year, a condition for approval will be agreeing to similar limits to those placed on other immunity-exempted alliances. DOT officials respond that any restrictions forced on the airlines in consideration for anti-trust immunity will be forced on Northwest and KLM.

This is all well and fine but the point is becoming increasingly moot. As airline alliances - especially those with exemptions that let members price their products in concert - proliferate, other pricing forums are pushed toward redundancy.

Northwest, for instance, does not seem too concerned about being forced out of the tariff conferences. 'On the Atlantic, Iata is largely irrelevant,' says Elliott Seiden, Northwest's VP of government affairs. 'It serves less and less of a purpose in terms of actual price fixing.' In fact, he adds, one of the great advantages of the Iata interline pricing system used to be that it was the only entity that set international through fares. But now, airlines can offer through-itineraries by virtue of their two systems being hooked together. And North- west-KLM, with antitrust immunity, can construct fares that span the two-system network. Says Seiden: 'Iata had a pro-rate fare based on full 'Y'. What we can do is construct global fares between the two networks with no regard to the Iata rate. It has brought prices down considerably.'

Northwest officials are not alone in their benign feelings toward Iata's pricing protocol. American Airlines, for example, dropped out completely last January. The general feeling among many large international carriers, says a source at Lufthansa, is that because of the volatility of markets and the perishable nature of an airline's product, many are interested in reacting to market events without having to use prior, formal procedures within Iata. 'The importance of Iata pricing conferences has clearly eroded in the past few years,' the source says.

Even Iata officials admit pricing conferences appear dated, if only because the global airline industry is evolving out of the need. David O'Conner, Iata's Washington representative, points out that as each year passes, countries and airlines become slightly more flexible with regard to pricing policies. As larger and more in-depth alliances are constructed, 'the less need you have for tariff coordination as a commercial matter.' The qualifier is that not all international airlines are members of large, global networks.

That suggests that pricing conferences, especially in markets where consolidation is not occurring as rapidly as it is over the north Atlantic, will probably not be going away any time soon. And the interline system that is Iata's trademark will likely never be outdated. That system, which is basically a standards-making process, has proven invaluable to defining a spectrum of industry needs, from paper stock for airline tickets to defining terms for offers like youth fares.

And, says the Lufthansa source, in times of crisis a standards-making body can prove important: 'During the Gulf crisis Iata was absolutely critical. It may be important to have a forum in place without necessarily preventing any individual carrier pricing as it wants to in the market.'

With so many parties uninterested in continuing an international pricing forum, the question for US officials may not be how to force carriers out, but how to use the issue to a larger political end.

Though market processes tend to work faster than bureaucratic ones, Iata officials are not waiting to be consolidated out of business. 'Our future may be a little different, but we are not ready to pack up our tent and go home,' says O'Conner.

Mead Jennings

Source: Airline Business