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[Publisher:] Institut für Weltwirtschaft (IfW) [Place:] Kiel [Year:] 2000
Kieler Diskussionsbeiträge 370
In international aviation, global strategic alliances (GSAs) have in recent years become an important form of cooperation between airlines. This cooperation has hit the antitrust nerve of the European Commission. Initially, the Commission had attempted to constrain both the market share of the major alliances in transatlantic air transport and their access to major European hubs (London and Frankfurt). The airlines maintain that they need alliances as an inevitable means to adapt to the changing environment in increasingly liberalized and globalized air transport markets in order to remain competitive and to fully realize their growth potential. The final verdict by the Commission will be published soon. Though the existing airline alliances are not stable enough to threaten competition and the openness of airline markets on a global scale, certain hubs or even city pairs might be in danger of being dominated by an individual alliance. This is all the more so as alliances in aviation — contrary to, e.g., strategic R&D alliances in manufacturing — are based on cooperating in a core area of the participants' commercial activities, which might end in collusion. On the other hand, alliances may indeed be regarded as an appropriate tool for internationally active firms to remain competitive. For analyzing alliances' impact on competition, networks seem to be more appropriate than city pairs. On the networks level, complementary alliances usually improve overall welfare via lower fares in all submarkets, whereas parallel alliances tend to result in higher prices in the former parallel markets and lower in other markets due to network spillover effects. Since GSAs in aviation are both of a complementary and a parallel nature, no clear-cut a priori position for or against alliances can be maintained based on conventional antitrust reasoning. From the new institutional economics perspective, alliances are ambiguous as well, because this perspective highlights the efficiency objectives of the participating carriers as well as the potential for collusion and opportunistic behavior. Empirical evidence on the market shares and pricing behavior of alliances and their members does not as yet reflect an increasing threat to competition by these forms of cooperation. But it should be noted that alliances appear to be gaining greater stability over time and that the number of independent competitors is shrinking. These independent competitors contribute much to the dynamics of the competitive process. If their vital role for competition were to be restricted, GSAs in airtransport might prove to be detrimental in the long run. The European Commission is right to be on the alert about GSAs having potentially detrimental effects on competition. However, the Commission should avoid overreacting in its zeal to keep markets open (contestable). It should be borne in mind that market access on transatlantic as well as on most other international air transport routes is still governed by the administrative provisions of intergovernmental bilateral agreements and not by market forces. Therefore, the rrtore relevant question for aviation.policy would be whether competition on the North Atlantic routes could be best maintained by scrapping the bilateral agreements and embarking on a truly liberal open skies aviation agreement between the EU, the United States, and other countries.
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