Regulatory Convergence Between U.S. Antitrust Law and Eu Competition Law in International Air Transport—Taking Stock

Abstract

This article takes stock of the regulatory convergence between US antitrust law and EU competition law in the field of international air transport. The analysis draws a distinction between domestic aviation and international aviation and sets the boundaries of regulatory convergence in international air transportation. Through a comparative analysis of the decisional practice of the U.S. Department of Transportation and the European Commission, it identifies instances of regulatory convergence in: (i) the definition of the relevant market in international airline alliance cases, (ii) the remedies imposed to immunize international airline alliances, and (iii) the duration of the antitrust immunity. It further identifies an instance of legislative convergence in the area of fair competition in international air transport. The analysis addresses the future of regulatory convergence in the post-Covid 19 era and emphasizes the role of the competition authorities in safeguarding consumer welfare.

I. INTRODUCTION

There is a debate in international air transport that is ever-present. It concerns the need for fair competition on a level playing field. The States’ perception of what constitutes fair competition in international air transport has evolved from a quid pro quo approach, synonymous with equality of outcome, in the era of airline regulation, to a laissez-faire approach, synonymous with equality of opportunity, in the era of airline de-regulation.¹ However, no consensus has ever been reached as to, first, what constitutes fair competition in an industry whose market access is still contingent on bilateral air services agreements (ASAs) and where foreign inward investment in national airlines is restricted,² and, second, what the pre-requisites of a level playing field are.³ The United States and the EU have pioneered open skies and regulatory convergence in an array of areas, most notably competition. This paper explores the degree of convergence achieved between U.S. antitrust law and EU competition law and practice in international air transport.

The concept of regulatory convergence, as opposed to regulatory harmonization, has been a subject of extensive study.⁴ Various definitions have been offered to distinguish between the two. The musically educated know well how to harmonize a melody. Linguists recognise the Greek word (harmonía) in harmonisation. Classicists may recall that according to Hesiod’s Theogony, (Harmonía) was the daughter of Ares, the Greek god of war, and Aphrodite, the Greek goddess of love and beauty.⁵ The concept of “convergence” or “convergent evolution” is ubiquitous in biology.⁶ In the present paper, which, admittedly, tackles a drier subject than music, linguistics, classics, and biology, regulatory convergence denotes a process whereby law and practice in different jurisdictions gradually obtain similar characteristics so much so that an affinity between them is created.⁷ Such an affinity, however, does not reach the high water mark of regulatory harmonization, where, much like in music, law and practice in different jurisdictions are at the service of the same ideal (or melody), such as European integration.⁸

Besides the obvious importance of the subject-matter for the field of competition law, convergence in competition laws can function as a precursor of liberalization in industries whose regulation has been a function of national sovereignty, in particular international air transport.⁹ Arguably, what paved the way for the creation of a transatlantic open aviation area with the conclusion of the U.S.–EU Air Transport Agreement (ATA) ¹⁰ was the close affinity between U.S. and EU law in critical areas, including competition. Considering the influence of U.S. antitrust law and EU competition law on global competition laws, their convergence could catalyze air transport liberalization at the global level, which could be translated into free market access and unrestricted investment opportunities.

Even though in recent years national sovereignty has been accentuated by events such as financial and sovereign debt crises, income inequality, immigration, Brexit, Covid-19, and, presently, the Russian invasion of Ukraine, so much so that a discussion about regulatory convergence seems incongruous, the reality on the ground indeed points to convergence. Assuming that the surge of national sovereignty is a symptom of globalization, looking to the industry that globalized the world well before the invention of the worldwide web to assess the dynamic of regulatory convergence, namely international civil aviation, may prove useful.¹¹

This paper takes stock of the regulatory convergence between U.S. antitrust and EU competition law in the field of international air transport. It finds that good progress has been achieved since 2004 (the year when the European Commission’s competence was extended to competition in international air transportation),¹² something that may suggest that the debate on fair competition on a level playing field is bearing fruit. The analysis detects instances of regulatory convergence in the definition of the relevant market, the remedies imposed by the competition authorities and the duration of the antitrust immunity. An instance of legislative convergence is also detected in the area of fair competition in international air transport. Sections II and III, which follow, justify the scope of the analysis, which is centred on international aviation and U.S. antitrust and EU competition law. Section IV elaborates on the limits of convergence in international air transportation. Section V singles out the areas where regulatory convergence has manifested itself. Section VI focuses on an instance of legislative convergence. Section VII examines the implications of Covid-19 for regulatory convergence. Section VIII concludes the analysis.

II. WHY INTERNATIONAL AIR TRANSPORT?

Before looking more closely into the issue of regulatory convergence, it is necessary to justify the scope of the analysis, which is primarily concerned with international air transport. Why is international air transport the appropriate domain in which to examine the convergence of national competition laws? The answer extends beyond the nature of air transport as an inherently cross-border activity to reach its historical regulation.

Market access in air transport has not been liberalized multilaterally by means of an international agreement or indeed bilaterally by means of ASAs. The “freedom of the seas” doctrine, which has constituted an accepted principle of international maritime law since the nineteenth century, has no equivalent in aviation.¹³ Market access in air transport boils down to traffic rights—otherwise known as “freedoms of the air”—that sovereign States negotiate bilaterally and agree upon in ASAs. There are currently nine freedoms of the air in ascending order of commercial sensitivity.¹⁴ The last two freedoms of the air in particular, which are concerned with cabotage services, that is, the right of an airline to operate domestically within a foreign country, are a rarity even in ultra-liberal ASAs.¹⁵

The 1944 Chicago Convention, which constitutes a main source of law in aviation (and one of the most successful instruments of public international law, having been ratified by 193 States), provides that: “[E]ach contracting State shall have the right to refuse permission to the aircraft of other contracting States to take on in its territory passengers, mail and cargo carried for remuneration or hire and destined for another point within its territory. Each contracting State undertakes not to enter into any arrangements which specifically grant any such privilege on an exclusive basis to any other State or an airline of any other State, and not to obtain any such exclusive privilege from any other State.”¹⁶ This provision affords States the right to reserve cabotage routes (domestic flights) for their national airlines. Even though it does not prohibit cabotage, it only rules out the granting of cabotage rights on an exclusive basis to a particular State or airline, States have by and large exercised their right to keep their domestic markets closed to foreign competition. The exercise of this right has taken the form of domestic laws that make the granting of an operating licence and an air operator certificate contingent on nationality criteria.¹⁷ In addition, it has taken the form of clauses in ASAs that explicitly exclude the operation of foreign airlines on cabotage routes.¹⁸

The prohibition of cabotage suggests that distortions of competition in domestic markets are unlikely to have a knock-on effect on international markets or on foreign domestic markets so as to become the subject of investigation by foreign competition authorities and trigger a process of regulatory convergence. The situation is more nuanced, however, when dealing with large domestic markets, such as the United States, or with the EU single aviation market, which constitutes a large cabotage area, where airlines active solely on domestic routes (for example, low-cost carriers) typically compete against international airlines (for example, hub-and-spoke airlines). In such cases, distortions of competition at home can have a knock-on effect on international markets, implicating foreign competition laws and igniting a process of regulatory convergence. For example, an airline could use the profits made by charging supracompetitive prices at home after squeezing its competitors out of the market to cross-subsidize its unprofitable international operations, distorting competition in the relevant international markets. In turn, such distortions in international markets could spill-over into the domestic market of the victim airlines, since the latter may have to scale down their operations at home, curtailing their network, the connectivity of small communities to the main hubs, and eventually the strength of their hub-and-spoke system.

Even though national competition laws contain mechanisms to address violations occurring in foreign jurisdictions, the regulation of market access in air transport by means of bilateral ASAs between sovereign nations renders the extraterritorial application of national competition laws a risky enterprise. This is because the State whose airlines are found to distort competition may take retaliatory action. The most dramatic expression thereof would be to denounce the relevant ASA, disrupting the air service between the two countries altogether.¹⁹ It is no coincidence that ASAs contain provisions on competition, which range from laconic (and thus difficult to operationalize) fair competition clauses to detailed provisions on cooperation with respect to competition issues.²⁰ The 2007 US-EU ATA—arguably, the most important ASA since the 1946 US-UK Bermuda I Agreement²¹—has as one of its purposes “to promote compatible regulatory approaches” in competition.²² It has been argued that “[N]ational legislation is not the most convenient basis for handling competition in international air transport. In international trade, national competition regimes lead to problems such [as] extra-territorial application of national law, uncertainty about competence, lack of transparency regarding the applicable rules, conflicts of jurisdiction, long lasting procedures and last but not least, high costs for the parties involved.”²³ The long-running airfreight cartel case exemplifies all of these issues.²⁴

International air transport has been the driver of regulatory convergence in the area of competition not least because airline access into foreign airspace is contingent on traffic rights agreed upon in ASAs, and moreover, these ASAs provide the framework to address competition issues. Therefore, the analysis herein focuses on international air transport.

III. WHY U.S. ANTITRUST LAW AND EU COMPETITION LAW?

Before delving into the analysis, it is necessary to clarify that, unlike the United States, where antitrust is another word for competition, in EU law antitrust is a narrower term concerned with abuse of dominance and anticompetitive agreements, but excluding merger control. This explains the terminological variance between U.S. antitrust law and EU competition law despite their covering the same field of law. Herein, “competition law” is used in its generic sense to refer to the field of law that protects the process of competition on the market.²⁵ When reference is made specifically to the U.S. and EU competition laws, the terms “US antitrust law” and “EU competition law” are used, respectively.

The selection of U.S. antitrust law and EU competition law as the test bed for regulatory convergence is dictated by economic, legal, and political reasons.

A. Economic reasons

The EU and the U.S. markets are comparable in terms of purchasing power and, to some extent, size. The EU covers over four million square kilometres and has 446 million inhabitants²⁶, while the United States covers 9.8 million square kilometres²⁷ and has a population of 332 million.²⁸ In 2017, the Gross Domestic Product of the EU with 27 Member States represented 16.0 percent of world GDP, expressed in Purchasing Power Standards, while the US had a share of 16.3 percent.²⁹

In terms of air traffic, in 2019, the total number of passengers travelling by air in the EU was 1,034 million, with extra-EU-27 transport representing 50 percent of total transport, intra-EU transport 34 percent, and domestic passenger transport 16 percent. The figures are by and large comparable to those of the United States, with the notable difference that the U.S. domestic market is twice the size of the EU domestic market (the latter being understood as a large cabotage area).³⁰ In particular, in 2019, U.S. airlines and foreign airlines serving the U.S. carried 1,053 million systemwide (domestic and international) scheduled service passengers, namely, 811 million domestic passengers and 241 million international passengers.³¹

Looking at the EU-US air passenger market, even though its significance for international air transport is diminishing along with the gravitation of growth towards Asia and the exit of the United Kingdom from the EU, it has been historically dominant. According to the European Commission Director General for mobility and transport, the transatlantic market in 2017 was 55 million passengers.³² The combined share of passengers carried through EU and US airports decreased from 61 percent of total world passengers in 2000 to 38 percent in 2015. Moreover, the combined share of EU and US carriers went down from 73 percent in 1970 to 42 percent in 2015. In 2008, EU carriers had the highest share of the global traffic with 24 percent, whereas in 2015, it was down to 19 percent. U.S. carriers had over 50 percent of the global share until 1974, whereas in 2015, this diminished to less than a quarter (23 percent).³³ Despite the downward trend, the maturity of the EU and the U.S. air transport markets individually and jointly renders them good comparators for studying regulatory convergence.

B. Legal reasons

The U.S. and the EU competition systems are the most widely emulated in the world. U.S. antitrust law is the mother of all competition laws, pioneering the first legislative instrument to control trusts (aka cartels) and other anticompetitive agreements, as well as unilateral conduct by monopolists (aka abuse of dominant position), namely the 1890 Sherman Act,³⁴ and the first legislative instrument to review mergers and acquisitions, namely the 1914 Clayton Act.³⁵ Private enforcement of the law, along the lines of the U.S. common law tradition, has engaged the U.S. courts in a process of refining the law in a myriad of cases. The dominance of the U.S. economy in the twentieth century and the prevalence of its capitalist economic system has put antitrust law centre stage, colouring its objectives with economic theory.

EU competition law has been part and parcel of the European venture, coming into being with the signing of the Treaty of Rome (1957).³⁶ The influence of U.S. antitrust law can be discerned in the substance and wording of the competition law provisions of the Treaty on the Functioning of the European Union (TFEU), namely Article 101, which is concerned with anticompetitive agreements and concerted practices, and Article 102, which is concerned with abuse of dominance.³⁷ The same holds true for the EU Merger Regulation, which only came into being in 1990.³⁸ Unlike the United States, where private enforcement has shaped antitrust law, the EU legal order being a hybrid jurisdiction at the confluence of the civil and common law tradition³⁹ has relied on public and private enforcement alike for the shaping of competition law, with the European Commission and the European Courts being the protagonists in this process and the national competition authorities and national courts the deuteragonists. EU competition law has been a tool of economic integration from the outset, pursuing objectives that extend beyond economic efficiency.⁴⁰

These two systems of competition law have been widely transplanted in numerous jurisdictions. Up until the 1970s, there were only a handful of jurisdictions featuring a competition law. Today, there are more than 130 jurisdictions with a system of competition law. In a recent study, Bradford et al. examined the influence of the EU and the U.S. competition regime in the 126 jurisdictions that by 2010 had a competition law regime.⁴¹ By comparing the correlation between key substantive provisions in countries’ competition laws with the EU and the U.S. laws over time and by drawing on coding of linguistic similarity in competition statutes to establish how frequently countries have incorporated key parts of the EU and U.S. language into their own statutes, the authors found that the average correlation for countries to the U.S. competition law has slowly declined over time, whereas the average similarity to the EU has increased dramatically since the year 1990, when the introduction of the EU Merger Regulation coincided with the gradual proliferation of competition law systems around the world. The study confirms the pervasive influence of the EU and the U.S. competition regimes on global competition law. This finding suggests that lessons learnt from examining the convergence between these two regimes in international air transport are pertinent to an array of jurisdictions.

The rich competition culture that exists in the U.S. and the EU is demonstrated by their longstanding cooperation in competition law issues, which dates back to 1991, when they first entered into an agreement “to promote cooperation and coordination and lessen the possibility of impact of differences between [them] in the application of their competition laws.”⁴² This agreement, founded on the principle of comity, was further elaborated in 1998, that is, well before the formation of the International Competition Network (2001) and the European Competition Network (2004).⁴³ Even though the European Commission did not enjoy powers of investigation and enforcement with regard to competition infringements in air transport between the EU and third countries until 2004, the preceding exchanges with the U.S. regarding competition issues in other sectors of the economy arguably smoothed the way for the application of the Parties’ competition laws to international air transport.⁴⁴

C. Political reasons

Looking at the politics that justify the emphasis on the U.S. and the EU jurisdictions, both have devised and actively pursue an external aviation policy with competition at its core. The U.S. launched its open skies policy in 1992⁴⁵ and linked it to antitrust immunity from the outset, inviting foreign airlines that contemplated an alliance with American airlines to apply for approval and antitrust immunity and committing itself to consider such applications fairly and expeditiously provided that the foreign airlines’ home countries had entered into an open skies agreement with the United States.⁴⁶ The United States justified its policy of granting antitrust immunity if an open skies agreement was in place on the grounds that the latter removed barriers to entry, keeping the markets contestable. The U.S. policy has tightened over time and, in 2008, it was decided that immunity may only be granted to metal-neutral alliances, namely deeply integrated alliances resembling a merger.⁴⁷ To date, the United States has concluded 130 open skies agreements⁴⁸ and has immunized 25 (currently active) airline alliances, including the three branded global alliances (BGAs), namely SkyTeam, STAR, and oneworld.⁴⁹

The U.S. open skies policy has been the trigger behind the EU external aviation policy. The conclusion of open skies agreements between the U.S. and certain EU Member States in the 1990s coincided with the creation of the single European air transport market following a process of air transport liberalization. By the year 1997, the EU had evolved into a large cabotage area where EU airlines enjoyed the freedom of establishment.⁵⁰ The open skies agreements with the U.S. contained nationality clauses that bound the exercise of the air traffic rights agreed thereunder to the airlines of the bilateral partners. The open skies judgments of the European Court of Justice outlawed such clauses on the grounds that they impeded the effective exercise of the EU freedom of establishment, enabling the European Commission to develop the EU external aviation policy.⁵¹

The conclusion of (what the European Commission refers to as) “comprehensive” ATAs with key partners constitutes a main pillar of the EU external aviation policy. Such agreements aim at, inter alia, market opening and creating the conditions for fair and open competition through regulatory convergence.⁵² The 2007 U.S.-EU ATA was the first agreement of this type.⁵³ Unlike traditional bilateral ASAs that contained epigrammatic fair competition clauses that could hardly be operationalized, the U.S.-EU agreement addressed competition issues systematically by establishing a cooperation mechanism between the Parties’ competition authorities “to promote compatible regulatory results and to minimise differences in approach with respect to their respective competition reviews of inter-carrier agreements.”⁵⁴ The EU has since concluded similar agreements with Canada,⁵⁵ Qatar,⁵⁶ and the Association of South East Asian Nations (ASEAN).⁵⁷

Another main pillar of the EU external aviation policy, implemented through comprehensive ATAs, is the creation of a Common Aviation Area with neighbouring countries. The vision is that, over time, a Common Aviation Area will be created based on a parallel process of gradual market opening and regulatory convergence towards EU aviation legislation, encompassing some 55 countries and one billion inhabitants.⁵⁸ To date, the EU has concluded such agreements with the Western Balkans, Morocco, Georgia, Jordan, Moldova, Israel, Ukraine, and Armenia and is about to sign a similar agreement with, Tunisia.⁵⁹

IV. WHAT ARE THE BOUNDARIES OF REGULATORY CONVERGENCE IN INTERNATIONAL AIR TRANSPORT?

Before looking at the areas where regulatory convergence between U.S. antitrust law and EU competition law has manifested itself in international air transport, it is necessary to be aware of the limits of this process. These limits are posed by the very regulation of international air transport, namely by the fact that market access in air transport has not been liberalized, but is subject to bilateral (or, rarely, multilateral) ASAs, which even in their most liberal (open skies) expression restrict airline operations.

Looking first at the era of regulation, that is, the period from the conclusion of the most influential ASA in the history of commercial aviation, namely the 1946 UK-US Bermuda I Agreement, to the launching of the U.S. open skies policy in 1992, ASAs were negotiated by sovereign States to achieve equality of outcome rather than equality of opportunity.⁶⁰ With traffic rights exchanged on a quid-pro-quo basis, pricing controlled by national governments and capacity calibrated to ensure that the bilateral partners’ airlines enjoy “a fair and equal opportunity to operate” (as opposed to a fair and equal opportunity to compete), abuse of dominance was ruled out.

In the era of deregulation, that is, the period from the first open skies agreement between the United States and the Netherlands to date, open skies agreements have been linked to antitrust immunity from their inception.⁶¹ Thus, although in theory they encourage airline competition, in reality, they induce airline cooperation in the form of alliances. The pre-requisite of metal neutrality for the granting of antitrust immunity, formalized in 2008, intensified airline cooperation.⁶² Even though the nature of competition has changed over time along with the organization of airlines in three BGAs and has taken the form of inter-alliance competition as opposed to inter-airline competition, antitrust immunity has thrown a veil over airline alliances, covering up abuses taking place within the same alliance or to the detriment of airlines belonging to competitor alliances.⁶³ Thus, to date, no cases of abuse of dominance have been brought against airlines active on international routes to enable the competition authorities to pronounce.⁶⁴

The historical regulation of international air transport has also restricted airlines in their ability to merge. Ownership and control clauses in ASAs, which constitute reflections of national laws limiting foreign inward investment in national airlines to a certain (minority) percentage, have led to the creation of international airline alliances in lieu of cross-border mergers. The U.S. and the EU have scrutinized numerous alliances albeit under different regimes. The United States regards airline alliances as quasi-mergers and examines them in the light of the Clayton Act, whereas the EU regards them as agreements between undertakings and examines them in the light of Article 101 TFEU.⁶⁵ However, the authorities’ approach is similar and over time it is converging. Therefore, even though cross-border mergers are ruled out as a matter of domestic law and international treaties, the authorities’ approach towards international airline alliances enables us to examine regulatory convergence in the areas of antitrust and merger control in tandem.

Last, the analysis will examine an instance of quasi legislative harmonization between U.S. law and EU law cutting across all areas of competition, including State aid, to draw conclusions about regulatory globalization in the post-Covid 19 era.

V. WHAT ARE THE AREAS OF REGULATORY CONVERGENCE BETWEEN U.S. ANTITRUST LAW AND EU COMPETITION LAW IN INTERNATIONAL AIR TRANSPORT?

A. Definition of the relevant market and out-of-market efficiencies

The definition of the relevant market in international air transport, and in particular between the EU and the United States, presents certain peculiarities. International air services are often long-haul, inter-continental flights operated by network air carriers. Very rarely will low-cost airlines operate on long-haul routes since their business model is adapted to short and medium-haul routes.⁶⁶ This entails that competition on direct routes takes place entirely among network airlines. In contrast, on indirect routes, network airlines may face competition from LCCs, albeit limited to a portion of the international journey. This is unlike international short and medium haul air services (for example, intra-European or U.S.-Canada transborder), where network airlines are often undercut by very agile point-to-point LCCs, charter airlines, and high-speed rail. The fact that competition takes place mainly among network air carriers on long-haul routes implies that in defining the relevant market, supply-side considerations merit attention.

Moreover, the proliferation of airline alliances since the 1990s has changed the nature of competition in the industry. Inter-airline competition has been overshadowed by inter-alliance competition, a process that has been encouraged by both the EU and the U.S. with the clearance of the three BGAs.⁶⁷ Airline alliances’ membership consists of airlines operating a hub-and-spoke network. Indeed, the added value of forging a multi-member alliance consists in the interconnectedness of the member airlines’ networks and the dynamic of global coverage. LCCs operate a point-to-point network that is largely incompatible with the hub-and-spoke business model.⁶⁸ Therefore, the elevation of airline competition to alliance level cannot but diffuse supply substitution elements into the definition of the relevant market.

1. United States

The need to take into account network effects when defining the relevant market is acknowledged in the United States, and, arguably, it is the institutional framework that induces this outcome. In a somewhat idiosyncratic division of labour, antitrust law is enforced in domestic aviation by the DOJ and the Federal Trade Commission and in foreign air transportation by the Department of Transportation (DOT).⁶⁹ The fact that foreign air transportation is entirely within the remit of the DOT implies that external aviation policy and international aviation competition policy coexist in a dialectical relationship that is even statutory. Thus, under 49 U.S.C. § 41309, the DOT must consider the “public interest” before approving a pro-competitive international airline alliance. Moreover, before disapproving an international airline alliance that substantially reduces or eliminates competition, it must examine whether it is necessary to meet a “serious transportation need” or to achieve “important public benefits” (including “international comity and foreign policy considerations”) that cannot be met or achieved by reasonably available alternatives that are materially less anticompetitive. Once an agreement is approved, the “public interest” kicks in again in the second step of the analysis (under 49 U.S.C. § 41308), which consists of a determination of whether to grant antitrust immunity.

It is within this framework that the definition of the relevant market is performed by the DOT each time a cooperative agreement is filed for approval. Looking at the DOT’s decisions, the definition of the relevant market is hardly distinct from the efficiencies that the transaction is expected to generate. Indeed, the narrower the market becomes (for example, city-pairs as opposed to country-pairs or regional markets), the broader the terrain of efficiencies gets.

To illustrate, in the STAR alliance case, the DOT limited its analysis to those markets in which Continental’s services overlapped with the services of the already immunized alliance members and examined the competitive effects of the transaction at the regional, country-pair and city-pair levels.⁷⁰ When looking at city-pairs, and specifically at nonstop hub-to-hub routes where competition would be eliminated upon implementation of the agreement, it appeared open to out-of-market efficiencies, stating: “efficiencies created by the transaction in other markets may be considered if a remedy is not available to address the loss in competition while still preserving the benefits of the transaction.”⁷¹ Indeed, in its final decision, the DOT not only abstained from imposing a remedy but even removed the existing (Washington-Frankfurt and Chicago-Frankfurt) carve-outs since “where an integrated ‘metal-neutral’ joint venture is present, carve outs inhibit the realization of efficiencies and thereby the consumer benefits resulting from those efficiencies.”⁷² In the DOT’s view, “the critical issue is whether the overall consumer benefits of antitrust immunity will outweigh the potential competitive harm in some markets.”⁷³

More recently, in the Blue Skies case concerning the metal-neutral joint venture between Delta, Air France/KLM, and Virgin Atlantic, the DOT dismissed the criticism of the American Antitrust Institute that the Department’s approach is asymmetric because it assesses competitive effects on nonstop routes while assessing public benefits on all routes.⁷⁴ Instead, it stated that it “takes a holistic view of public benefits, crediting certain “out-of-market” efficiencies in determining whether the public at-large will derive benefits from immunized alliances” and “while a grant of ATI may effectively increase concentration on a nonstop route, the ensuing cooperation across a number of markets allows for more interline itineraries at lower fares, which result in overall net consumer benefits.” ⁷⁵ It further countered the criticism that it focuses only on market dominance and not on market concentration, as measured by the Herfindahl–Hirschman Index (HHI), by stating that many of the public benefits that flow from immunized joint ventures are a direct result of the joined networks’ breadth and are not captured in an HHI analysis.⁷⁶

2. European Union

On the other side of the Atlantic, the European Commission pursues a more stylized analysis, clearly distinguishing between the definition of the relevant market and the competitive assessment as part of which efficiencies are considered.⁷⁷ The relevant market for scheduled passenger air transport services is defined on the basis of the “point of origin/point of destination” (O&D) city-pair approach, with each route being considered a separate market.⁷⁸ This market definition corresponds to the demand-side perspective whereby customers consider possible alternatives of travelling from a city of origin to a city of destination, which they generally do not consider substitutable to a different city pair.⁷⁹ The Commission has acknowledged that corporate customers attach particular importance to the geographical coverage of airline networks. However, since the needs of corporate customers’ employees still revolve around transport from one point to another, O&D city pairs remain the relevant market definition for corporate customers.⁸⁰ Thus, in the STAR alliance case, the Commission took into account such “network effects” in the assessment of the competitive impact of the parties’ cooperation on each individual O&D, as well as in the assessment of the efficiencies presented by the parties.⁸¹

In STAR alliance, the Commission was concerned that competition would be eliminated on the Frankfurt–New York route for premium passengers. Looking at out-of-market efficiencies, it established that travellers flying on related behind and beyond routes, namely, Seattle–New York–Frankfurt and Prague–Frankfurt–New York, respectively, would enjoy lower fares following the airlines’ cooperation due to the reduction of double marginalization.⁸² Lower fares would in turn generate higher demand for the connecting routes. Consequently, a higher number of passengers would be flown on the problematic hub-to-hub route, enabling the parties to achieve lower per-passenger costs by exploiting economies of density and pass on a share of such cost savings to the consumers. Even though the Commission imposed a remedy on the hub-to-hub route, since it deemed the combination of the demonstrated in-market and out-of-market efficiencies insufficient to outweigh the likely negative effects of the elimination of competition on the route, it established a so-called “broadened” or “complementary” test on out-of-market efficiencies.⁸³

According to the Commission Guidelines on the application of Article 101(3) TFEU, “negative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market. However, where two markets are related, efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same.”⁸⁴ In STAR alliance, the Commission regarded the behind and beyond routes as related to the relevant hub-to-hub route in that there was a two-way flow of efficiencies across those routes. Despite the fact that the group of consumers affected by the restriction and benefitting from the efficiency gains was not “substantially the same,” the Commission was satisfied that there was “considerable commonality” between them and proceeded with crediting the out-of-market efficiencies only to the extent that they accrued to the relevant hub-to-hub market.

The Commission justified the broadening of the test under the Guidelines on the basis of “the objective factual elements specific to this case,” which “include a certain discrepancy between market definition on the demand-side and supply-side, two-way flow of efficiencies and considerable commonality between passenger groups.”⁸⁵ It is important to point out that the Commission did not go as far as aggregating efficiencies across the relevant hub-to-hub market and the related behind and beyond markets on the basis of the “considerable commonality” test. Instead, it only took into account the out-of-market efficiencies that were enjoyed by the passengers who travelled both on the Frankfurt–New York route of concern and related behind and beyond routes so as not to balance competitive harm to one customer group against benefits to another customer group. Therefore, the broadening of the test consists in the identity of the beneficiaries across the related markets, who need not be “substantially the same” but need to enjoy “considerable commonality.”⁸⁶

The wording of the part of the decision pertaining to Article 101(3) TFEU reflects a degree of anxiety on the part of DG COMP in regard to justifying the broadening of the test.⁸⁷ Unlike the U.S. DOT, DG COMP is only competent to enforce the competition and State aid law provisions of the Treaty, having traditionally pursued a technical and somewhat parameterized competition analysis. Unwittingly, in STAR alliance, DG COMP nodded to the fact that a rigid demand-side definition of the relevant market when network industries are in question may be myopic. Accepting out-of-market efficiencies, even to the limited extent that they spill over into the route of concern, in a way extends the boundaries of the relevant market. In a recent paper on out-of-market efficiencies, two-sided platforms and consumer welfare, Ducci highlights the inherent limits of market definition when the economics of two-sided platforms are ignored and argues that the consumer welfare standard is best served when allowing the aggregation of efficiencies across markets.⁸⁸ It is questionable whether the economics of hub-and-spoke networks are accounted for when the market definition and consumer welfare analysis are confined to O&D pairs.

The evolution of the EU thinking on the definition of the relevant market has recently been crystallized in Regulation 2019/712 on fair competition in international air transport (see below, section VI).⁸⁹ The Regulation provides that “the Commission should give consideration to the practices distorting competition in the relevant context. Given the variety of possible practices, the practice and its effects might, in some cases, be limited to air transport activities of a city-pair route while, in other cases, it might be relevant to consider the practice and its effects on the wider air transport network.”⁹⁰ Interestingly, under the Regulation, network effects are examined at two levels: at the level of the EU air carriers concerned, as well as at a broader level that has to do with the general situation in the air transport services markets affected in terms of use of the network.⁹¹ Even though Regulation 2019/712 is the brainchild of the Directorate General for Mobility and Transport (DG MOVE), which has competence in the area of the EU external aviation policy, it binds the Commission in toto and can be assumed to reflect the EU approach to defining the relevant market at large.

The Commission has been criticized for overlooking network effects when defining the relevant market.⁹² Nevertheless, its decision in the STAR alliance case has brought it a step closer to the DOT. Furthermore, the recently adopted Regulation 2019/712 on safeguarding fair competition may signal a switch towards a more holistic approach in the definition of the relevant market.

B. Remedies

1. European Union

Transatlantic airline alliances are usually cleared with remedies. The European Commission scrutinizes airline alliances in the light of Article 101 TFEU, which is implemented by means of Council Regulation (EC) No 1/2003.⁹³ Even though these transactions do not have to be notified prior to their implementation to any national competition authority or indeed the European Commission for approval—if the parties consider that they do not raise competition concerns—their magnitude is such that the involvement of the Commission is inescapable. Normally, their announcement triggers the opening of a formal investigation by the Commission, either ex officio or following a complaint, which conducts a preliminary assessment after consulting with the parties and key stakeholders, most notably the parties’ customers and competitors. The preliminary assessment often results in a statement of objections, where the Commission expresses its competition concerns. To remedy these concerns, the parties submit initial commitments, which are market-tested by the Commission and may have to be amended before they are made binding on the parties with the adoption of a so-called commitment decision.⁹⁴ All three BGAs have been approved by means of a commitment decision.⁹⁵

DG COMP has long experience in the assessment of airline alliances and mergers. Even though these are two distinct categories of transactions, falling under different regimes, that is, Regulation 1/2003 and Regulation 134/2004, respectively, the Commission’s competitive assessment is similar. Most concentrations are declared compatible with the internal market either outright (positive decision) or following modifications, aka remedies (conditional decision).⁹⁶ Airline mergers are usually cleared with remedies. Equally, a commitment decision in the area of airline alliances consists of the remedies that the parties must implement. Mutatis mutandis, in the area of State aid law, aid is often authorized conditionally, especially if it is in the form of operating aid, which is particularly distortive of competition. Recently, recapitalization aid to airlines to address the Covid-19 crisis has been approved subject to conditions.⁹⁷ The most prominent remedy cutting across all three areas of EU law is slot divestments at hub airports.

Hub airports constitute the focal point in an airline’s network, since they are used as a base where flights originate, are funnelled through or terminate. They are usually primary airports located near the city centre and thus the preferred choice for time-sensitive business travellers. They are often the only choice for leisure travellers on long-haul routes, since the feeder traffic that is directed from the various spokes on the network to the main hub justifies frequent operations to a myriad of destinations around the world. In the EU, hub airports are often dominated by a single airline that has held a portfolio of slots since the era prior to liberalization, when both national flag carriers and hub airports were publicly owned. EU airlines have no property rights over slots (and gates for that matter) at EU airports, but they acquire grandfathering rights if they use the slots for 80 percent of the time during the period for which they have been allocated (use-it-or-lose-it principle).⁹⁸ Under EU law, slots can be exchanged, one for one, between air carriers or transferred between air carriers in certain specified circumstances (for instance, between parent and subsidiary companies, in the case of a partial or total takeover, or transfer to a different route).⁹⁹ Even though slot trading is not explicitly permitted, this provision has enabled secondary trading of slots (that is, exchange of slots for money) at congested airports where market entry is hard,¹⁰⁰ most notably Heathrow Airport.¹⁰¹ The scarcity of slots at hub airports is exacerbated by airport saturation and obstacles to expansion, and constitutes the main barrier to entry.¹⁰²

Slot remedies are quasi-structural in nature.¹⁰³ Technically, under EU law, they are access remedies in that they grant access to take-off and landing runway capacity and to corresponding terminal capacity (for example, gates, check-in desks, and luggage belts).¹⁰⁴ However, given that their release to new entrants enables the latter to operate them for a guaranteed period of up to 10 years,¹⁰⁵ which may be extended upon its expiration,¹⁰⁶ the alliance partners are deprived of valuable assets for considerable periods, albeit without losing their historic precedents. To address their frequency advantage at hub airports, the Commission often combines slot releases with fare combinability remedies, whereby existing competitors and new entrants can offer a return trip on a relevant city-pair market comprising a non-stop service provided one way by them and a non-stop service provided the other way by one of the alliance partners. Slot releases are also combined with special prorate agreements, whereby the alliance partners make available their feed traffic at both ends of a route to new entrants (and competitors with no presence at the relevant hub airports) on advantageous terms. Slot remedies are hefty, and even though they are not always successful in engineering sustained market entry,¹⁰⁷ they constitute the Commission’s preferred way of addressing anticompetitive effects.

2. United States

The U.S. approach to remedies is seemingly different. Airlines may file with the DOT their commercial cooperation agreements in foreign air transportation for approval, but they are not under a legal obligation to do so, even though these agreements are assimilated to mergers under U.S. law.¹⁰⁸ However, the risks involved in implementing (especially) a metal-neutral joint venture without gaining antitrust immunity entail the involvement of the DOT from the outset. As mentioned already, the DOT’s competitive analysis factors in foreign policy considerations. Indeed, on the face of it, it is less rigorous than DG COMP’s and this is reflected in particular in the remedies that are adopted to clear the transaction. Unlike DG COMP, the DOT, first, is not shy to approve an alliance and grant antitrust immunity with no or light-handed remedies and, second, has little affinity for slot divestments. Instead, it seems to prefer carve-out remedies of which the European Commission has no experience.¹⁰⁹

A carve-out is an arrangement whereby antitrust immunity does not extend to routes in which the alliance partners both offer non-stop services. It effectively prohibits carriers from commonly pricing their products and services for a defined group of passengers in city-pair markets where competition would be eliminated as a result of antitrust immunity, that is, city-pairs where the alliance partners used to enjoy a duopoly and which would subsequently be monopolized unless carved out from the immunity. Carve-outs are anticipated to be temporary, lasting only until new entry introduces further competition, and are preferred for “two-to-one” markets, that is, markets that would shift from two competitors to a single operator.¹¹⁰

In SkyTeam II, a new phenomenon manifested itself that nuanced the DOT’s policy on carve-outs. This is the phenomenon of “an alliance within an alliance,” which has since also appeared in oneworld and STAR alliance.¹¹¹ In SkyTeam II, the mergers between Air France/KLM, on the one hand, and Delta/Northwest, on the other, resulted in a four-way, metal-neutral joint venture that was granted immunity separately from the original, less integrated, six-way alliance.¹¹² In STAR alliance, the DOT granted antitrust immunity to a ten-way alliance and, within that broader alliance, to a more integrated, four-way joint venture, involving Air Canada, Continental, Lufthansa, and United.¹¹³ In oneworld, the DOT granted immunity to a five-way alliance and, within it, to a three-way metal-neutral joint venture, formed by American Airlines, British Airways, and Iberia.¹¹⁴ This new configuration resulted in the DOT finding that where an integrated metal-neutral joint venture is present, carve outs inhibit the realization of efficiencies and thereby the consumer benefits resulting from those efficiencies.¹¹⁵ In such cases, the DOT tends to retain existing carve-outs until the metal-neutral joint venture is implemented, at which point they are revoked.¹¹⁶

The waning popularity of carve-outs became clear in oneworld, where the DOT concurred with the European Commission’s analysis and imposed slot remedies. In oneworld, the authorities conducted parallel investigations and cooperated closely to achieve compatible approaches in compliance with the obligations assumed under Annex 2 of the U.S.-EU ATA, which was explicitly invoked by the parties in the commitments submitted to the Commission, as well as by the Commission in its commitment decision and the DOT in its Show Cause Order. In its final decision, the DOT went to some lengths to explain how its slot remedies dovetail with the Commission’s and adopted a 10-year duration for the slot remedy as per the Commission’s practice.¹¹⁷ What is more, it expounded on how carve-outs in overlap markets would detract from the potential benefits of the alliance and expressed its scepticism about the efficacy of carve-outs, especially in the context of joint ventures.¹¹⁸

Even though oneworld is a particular case, since until 2008 (when the U.S.-EU ATA entered into provisional application) the Bermuda II U.S.-UK ASA had limited access to Heathrow airport to two American airlines,¹¹⁹ something that may have influenced the DOT in its imposition of slot remedies at Heathrow airport exclusively, this is not the only case where slot releases have been favoured.¹²⁰ In the 2016 Delta/Aeromexico case, DOT approved and immunized the parties’ agreement to coordinate their passenger services on routes between the United States and Mexico subject to slot divestitures at New York JFK airport and Mexico City airport.¹²¹ Unlike oneworld, where the DOT and the Commission coordinated their action, in Delta/Aeromexico, the DOT and the Mexican competition authority both ordered slot divestments, but they did not coordinate the unique terms and conditions attached thereto.¹²² While this case is also particular in that, at the time when the DOT adopted its decision, Mexico City airport did not follow the International Air Transport Association Worldwide Slot Guidelines or have functionally equivalent transparent rules for slot allocation and administration, it validated the DOT’s policy on slot remedies.

3. Assessment

Before drawing any conclusions on regulatory convergence in the area of remedies, it is important to consider the regime governing slot allocation at EU and U.S. airports. Unlike the EU, which is faced with a congestion issue at some 80 airports,¹²³ only three U.S. airports qualify as “level 3 airports,” where slot controls are in place.¹²⁴ Moreover, unlike the EU, where access to slots entails access to corresponding terminal capacity, in the United States, gates in particular are commonly leased to airlines under exclusive long-term leases.¹²⁵ This distinction suggests that while slot divestitures are well-suited to the EU, they may be ineffective at slot-constrained U.S. airports where gates are dedicated. Keeping this in mind, the historical preference of the DOT for carve-outs may be justified.

Having said that, even though the Commission market tests the commitments offered by the Parties and is very involved in their definition, the effectiveness of slot remedies cannot be easily established either ex post or ex ante.¹²⁶ In 2008, the Commission conducted an internal investigation into the effectiveness of slot remedies, whose results, however, have not been published.¹²⁷ The European Court has confirmed that the legal standard for slot remedies is that they must lead to actual and sufficient entry of new competitors and such entry must be timely and likely.¹²⁸

The UK Competition and Markets Authority (CMA) has recently examined the competition impact on UK-U.S. routes of the Atlantic Joint Business Agreement (that is, the alliance within the oneworld alliance).¹²⁹ The CMA identified possible competition concerns on routes between London and each of Boston, Chicago, Dallas, Miami, and Philadelphia. However, in view of the uncertainty caused by the coronavirus crisis, the CMA has kept its investigation open and imposed ‘interim measures’, effectively extending the terms of the 2010 commitments for an additional three years until March 2024.¹³⁰ Recent analysis by the Centre for Aviation of the North Atlantic airline joint ventures indicates that there has only been a limited increase in competition, if any, on the routes where slot releases were imposed in the Atlantic Joint Business Agreement and on the two routes that are most important to the other Joint Ventures (Paris–New York and Frankfurt–New York).¹³¹ Interestingly, the expiration of the CMA’s interim measures coincides roughly with the expiration of the commitments offered in the STAR and SkyTeam alliance cases. As pointed out by the Centre for Aviation, the CMA’s study could prompt other regulators to review the North Atlantic aviation market.¹³²

Arguably, the Commission appears confident in the ability of its slot remedies to prevent distortions of competition, but at the same time, it appears fearful of type I errors.¹³³ Its approach interferes with the transaction’s business rationale, but it does not rule out the transaction outright or altogether. Prohibition decisions are rare in airline alliance agreements, yet the same can be said about unconditional positive decisions, especially when a transatlantic airline alliance is at stake. It has been argued that the Commission’s policy reflects a willingness to rely on regulatory intervention (through the imposition of remedies) to rectify market failure that would otherwise be likely to occur. The faith in regulatory remedial action has resulted in the clearance of alliances and mergers between carriers with considerable overlapping networks.¹³⁴

In contrast, the DOT has expressed its reluctance to “get involved in the complicated contractual business relations of private parties,” appearing more fearful of type II errors.¹³⁵ Thus, the DOT has been keen on approving alliance agreements, and when considering the granting of antitrust immunity, it has limited itself to imposing carve-outs on problematic routes to maintain competition. Having said that, in SkyTeam I, the DOT denied antitrust immunity since the promised benefits could be achieved with arm’s-length code-sharing or other lawful forms of collaboration and has recently nuanced its carve-out policy, looking to other remedies, in particular slot divestitures, to safeguard competition.¹³⁶ Therefore, the differences between the European Commission’s approach and the DOT’s approach should not be overstated, not least because most cases have culminated in a similar outcome. The evolving policy of the DOT on slot remedies may point to an entrenchment of such concurrence.

C. Antitrust immunity

Metal-neutral airline alliances have operated with antitrust immunity since their inception.¹³⁷ The duration of such immunity is another area displaying signs of convergence.

1. European Union

DG COMP has always time-limited the approval of common bottom line international airline alliances in its commitment decisions. This is a legal requirement that is prescribed in Article 9 of Regulation 1/2003, which provides that a commitment decision “may be adopted for a specified period.”¹³⁸ According to DG COMP’s 2019 antitrust manual of procedures, “commitments should provide that a lasting improvement of the market structure is achieved within a foreseeable timeframe.”¹³⁹ Moreover, according to the Commission’s Notice on best practices for the conduct of Article 101 TFEU proceedings, the Commission must verify, in light of the principle of proportionality, that the commitments address the identified competition concerns and do not manifestly go beyond what is necessary to address these concerns.¹⁴⁰

The Commission has also published a template for divestiture commitments in the context of mergers and has stated that this model text can be adapted to the requirements of the specific case.¹⁴¹ The antitrust manual of procedures clarifies that “although there is no specific standard text for antitrust commitments, the Standard Model for Divestiture Commitments, originally developed for merger remedies, can be an appropriate ‘base text’ for antitrust commitments.”¹⁴² Indeed, the text of the commitments offered for the approval of international airline alliances is modelled on the template for merger remedies.

The template provides that the Commission may request all information from the parties that is reasonably necessary to monitor the effective implementation of the commitments for a period of 10 years from the effective date.¹⁴³ It also provides that, in order to maintain the structural effect of the commitments, the parties divesting assets shall, for a period of 10 years, not acquire the possibility of exercising influence over the divestment business.¹⁴⁴ A pertinent feature of the template is the review clause, which provides that the Commission may extend the time periods foreseen in the Commitments, as well as waive, modify, or substitute, in exceptional circumstances, one or more of the undertakings therein.¹⁴⁵ However, in an antitrust case, a review clause as foreseen in the template would be in addition and without prejudice to the possibility of Article 9(2)(a) of Regulation 1/2003 according to which the addressee can request a re-opening of the proceedings where a material change in the facts has occurred.¹⁴⁶

In all commitment decisions on international airline alliances, the Commission has time-limited its approval by making the commitments binding on the parties for a period of 10 years. In oneworld, the Commission stated that this duration is appropriate and necessary, in light of the dynamics and business planning of the industry; it may be adjusted pursuant to the review clause contained in the final commitments, and, if necessary, the final commitments may also be renewed, or similar remedies may be imposed on the parties, after the expiry of the 10-year period.¹⁴⁷ At the same time, the final commitments enable the Commission to conduct a mid-term review after five years; the outcome of this, however, is not meant to interfere with the effectiveness of the final commitments, since it shall not affect agreements already concluded on the basis of the final commitments.¹⁴⁸ Similar provisions were made in STAR¹⁴⁹ and SkyTeam.¹⁵⁰

The Commission’s decisional practice resonates with the EU’s regulatory practice at large, which is based on systematic reviews, evaluations, and reporting provisions. In their 2016 interinstitutional agreement on better law-making, the European Parliament, the Council, and the Commission agreed to systematically consider the use of review clauses in legislation, as well as whether to limit the application of certain legislation to a fixed period of time (“sunset clause”).¹⁵¹ It is characteristic that during the eighth parliamentary term (that is, July 2014 to December 2017), out of a total of 225 ordinary legislative procedure acts, 147 contained a review clause.¹⁵² Even though a distinction must be drawn between individual decisions and legislative measures of horizontal application, there is a clear correlation between the two that can also be traced in the limited duration of an Article 9 commitment decision.

2. United States

The U.S. portrays a different picture. The DOT inherited antitrust immunity power in international aviation from the Civil Aeronautics Board in the year 1985, when the latter was wound down.¹⁵³ Unlike EU law, where a legal basis exists and has been relied upon to limit the duration of the Commission’s approval, U.S. law does not seem to explicitly provide for a similar outcome. In 2009, Congressman Oberstar sponsored a bill to sunset an exemption from the antitrust laws in connection with an international alliance after three years.¹⁵⁴ The bill was never enacted, but it sparked a debate that lingers on to this date about the need to sunset antitrust immunity.¹⁵⁵

The DOT’s regulations afford it the power to review any antitrust immunity previously conferred. This power consists in “terminat[ing] or modify[ing] such immunity if the Assistant Secretary finds after notice and hearing that the previously conferred immunity is not consistent with the provisions of section 41308.” Moreover, “in any proceeding to review such immunity, the proponents of the immunity shall have the burden of justifying the continuation of previously conferred immunity.”¹⁵⁶ A discrepancy seems to appear between the law, which refers to a finding “after notice and hearing,” and the DOT’s final orders, where the statement is typically made: “[W]e may amend, modify, or revoke this authority at any time without hearing.”¹⁵⁷ In STAR alliance, the DOT expounded on the “review of limitations on immunity and conditions for removal” by stating:

“[A]t any time, the Department may review the limitations on antitrust immunity set forth above to determine whether they should be discontinued or modified in light of the following: current competitive conditions in the affected city pairs; the efficiencies to be achieved by the parties from further integration that would be made possible by discontinuation of the limitations on immunity, when balanced against any potential for harm to competition from such a discontinuation; regulatory conditions applicable to competing alliances; or other factors that the Department may deem appropriate.”¹⁵⁸

In the SkyTeam and STAR alliance cases, the DOT stated that “approval and grant of antitrust immunity will remain in effect indefinitely” on condition that the joint venture will be implemented within 18 months.¹⁵⁹ The rationale behind this requirement, that is, “to make the benefits of the alliance available to consumers as soon as possible,”¹⁶⁰ seems to coincide with the public interest justification for the granting of antitrust immunity and to explain the expiration of the authority and the automatic withdrawal of the immunity if this condition is not fulfilled.¹⁶¹ Similar provisions were made in oneworld.¹⁶² The DOT has recently limited the implementation period to six months.¹⁶³ Furthermore, it has subjected the validity of the immunity to reporting requirements “that will enhance the Department’s ability to monitor the competitive effects of the alliance.”¹⁶⁴

The 2016 Delta/Aeromexico case stands out, since for the first time in its decisional practice the DOT attached a sunset clause to antitrust immunity, which was granted for five years effective from the date of execution of the slot remedies and implementation of the joint venture.¹⁶⁵ The DOT rendered clear that there would be no automatic renewal of immunity by stating that, although the transfer of slots was permanent, the terms and conditions of the slot divestiture would apply for an initial five-year period and not beyond that “should the joint applicants re-apply for, and obtain, a further grant of antitrust immunity.”¹⁶⁶ In 2020, the DOT reaffirmed its decision by denying the motion of Delta and Aeromexico, seeking to remove the requirement for a de novo application. The DOT stated that “there is a high bar to removing a pillar of the 2016 decision” and “there is insufficient evidence in the record to support a substantial course correction at this time.”¹⁶⁷

Even though the Delta/Aeromexico case is unique in that, first, it did not mark a change of course in subsequent cases and, second, it dealt with a markedly anticompetitive regime at Mexico airport, it, nevertheless, signalled the DOT’s openness to sunsetting antitrust immunity, as is standard practice in the EU, Australia, New Zealand, and South Korea. The DOT has recently shown signs of cooperating and coordinating its actions with foreign authorities when assessing the same transaction. For example, in the 2019 American Airlines/Qantas II case, the parties were directed to conduct a self-assessment of their joint business agreement in seven years based on clear benchmarks set by the DOT and subject to the latter’s review. The seven-year period was determined on the basis of the expected review of the agreement by the Australian Competition and Consumer Commission so as “to achieve consistency between regulatory regimes in the U.S. and Australia” and “reduce the burden on the Joint Applicants as they would only need to develop a single core package of information for both of their regulatory reviews.”¹⁶⁸

As mentioned already, the granting of antitrust immunity in foreign air transportation has been controversial to the extent that it has been instrumentalized in the name of aeropolitics. Sunsetting antitrust immunity is a means of addressing such a criticism, but it may also signpost a direction towards more rigorous antitrust analysis.

VI. U.S.-EU LEGISLATIVE CONVERGENCE IN FAIR COMPETITION IN INTERNATIONAL AIR TRANSPORT

So far, the analysis has focused on areas of regulatory convergence between U.S. antitrust and EU competition law. The recently adopted EU Regulation 2019/712, addressing the issue of fair competition in international air transport,¹⁶⁹ is reminiscent of the U.S. International Air Transportation Fair Competitive Practices Act of 1974 (IATFCPA),¹⁷⁰ suggesting a degree of legislative convergence cutting across all areas of competition (including State aid) in international air transport.

The definition of fair competition in international air transport has been a moving target since the early days of commercial aviation. In the era of restrictive bilateral ASAs, fair competition was synonymous with equality of outcome. States would exchange traffic rights on a quid-pro-quo basis in order to give their air carriers the opportunity to participate in the provision of international air services on an “equal” footing with foreign airlines. As a result, little attention was paid to the size and maturity of the contracting Parties’ domestic market. This arrangement reflected the doctrine that traffic carried between two States belonged to those States rather than to markets, in other words that States had property rights in international air traffic.¹⁷¹

In the era of open skies agreements, fair competition denotes equality of opportunity within, however, the parameters of bilateralism, that is, the current system of intergovernmental regulation of commercial aviation. Air connectivity being the raison d’être of ASAs, several aspects in the provision of international air services have traditionally fallen outside the scope of ASAs, most notably issues to do with the environment, labour, taxation, consumer protection, subsidies, and the application of competition laws. As a result, States have not developed a common understanding of fair competition in international air transport and, assuming that fair competition can only be exercised on a level playing field, States do not seem to agree on the conditions constituting a level playing field either.¹⁷²

A. European Union

In recent years, the European Union has spearheaded the conclusion of comprehensive ATAs with key partners. Such agreements go beyond what is typically regulated in ASAs (for example, traffic rights, airline designation, capacity, frequencies, pricing, doing business, safety, and security) in that they contain provisions on the environment, labour, consumer protection, subsidies, and competition.¹⁷³ In the absence of a multilateral agreement on the economic regulation of international air transport, comprehensive ATAs aim at a clearer demarcation of the level playing field and ultimately at regulatory convergence. Arguably, fair competition clauses constitute the most impressive feature of such agreements, covering comprehensively the areas of discrimination or unfair practices, subsidies, financial reporting, antitrust, and concentrations.¹⁷⁴ Besides their scope, such clauses contain enforcement mechanisms, enabling the party whose carriers’ fair and equal opportunities to compete are adversely affected to ask for consultations with the other party and in the event of failure to reach an agreement, to take measures against the air carriers of the other contracting party.¹⁷⁵

Besides championing the inclusion of fair competition clauses in ASAs, the EU has adopted Regulation 2019/712 on safeguarding competition in air transport. The EU first adopted legislation to address the issue of fair competition in international air transport in 2004 as a reaction to the measures adopted by the United States to counter the repercussions of 9/11 for U.S. airlines. Regulation 868/2004 aimed at protecting EU airlines against the subsidization of third-country airlines and unfair pricing practices adopted by the latter when operating on routes to and from the EU.¹⁷⁶ The Regulation was plagued by internal shortcomings that rendered it inapplicable and was finally repealed by Regulation 2019/712 on safeguarding competition in air transport.¹⁷⁷

The new Regulation has been carefully crafted to address the deficiencies of its predecessor.¹⁷⁸ Its scope is wider, covering “practices distorting competition,” meaning “discrimination and subsidies.”¹⁷⁹ Discrimination is defined as “differentiation of any kind without objective justification in respect of the supply of goods or services” in areas such as public services, air navigation, airport facilities and services, fuel, ground handling, security, computer reservation systems, slot allocation, and charges.¹⁸⁰ Practices distorting competition are examined not only in regard to city-pairs, but also for their effects on “the wider air transport network.”¹⁸¹ Locus standi is granted to both individual airlines and Member States¹⁸² and complaints can be brought when there is “prima facie evidence of a threat of injury.”¹⁸³ The Commission has been enabled to carry out investigations in third countries (subject to the consent of the third-country entity and in the absence of an objection by the third country)¹⁸⁴ and to adopt “financial duties” or “any operational measure of equivalent or lesser value, such as the suspension of concessions, of services owed or of other rights of the third-country air carrier.”¹⁸⁵ The Regulation does not reach as far as suspending or limiting traffic rights that are granted by a Member State or the EU itself to a third country.¹⁸⁶

The most important innovation of the Regulation is that it regulates its interface with: (i) the ASAs to which the Union is a party and (ii) the ASAs concluded by Member States with third countries. If the EU has entered into an air transport-related agreement with a third country, the Commission may suspend the investigation if it appears more appropriate to address the issue “exclusively under the dispute settlement procedures” established by the relevant agreement.¹⁸⁷ It may also terminate the investigation if it concludes that adopting redressive measures would be against the Union interest.¹⁸⁸ Equally, EU Member States have the right to address a practice distorting competition exclusively under the dispute settlement procedures applicable under their bilateral agreements with the third-country concerned.¹⁸⁹ The complementarity between the fair competition clauses in ASAs and Regulation 2019/712 has been examined in depth in an earlier study, suggesting that the two instruments are interlocking in that the Regulation reinforces compliance with commitments undertaken under the ASAs and, in the event of default, with the relevant enforcement mechanisms and redressive measures thereunder.¹⁹⁰

B. United States

In the United States, legislation addressing the issue of fair competition in international air transport has existed since the 1970s. The 1974 IATFCPA was adopted in response to complaints from US airlines that they suffered discriminatory airport charges in certain countries.¹⁹¹ The Act enabled the U.S. government to implement retaliatory charges against airlines established in such countries when operating in the United States. In 1979, the scope of IATFCPA was expanded by means of the International Air Transportation Competition Act (IATCA), which addresses “unjustifiable or unreasonable discriminatory, predatory, or anticompetitive practices against a US air carrier” or “unjustifiable or unreasonable restrictions on access of a US air carrier to foreign markets.”¹⁹² The Act established a complaints procedure for U.S. airlines to report cases of discrimination or anticompetitive actions by foreign governments or airlines and empowered the DOT “without hearing, but subject to the approval of the President of the United States, [to] summarily suspend the permits of the foreign air carriers of such country, or alter, modify, amend, condition, or limit operations under such permits” and even “restrict operations between such foreign country and the United States by any foreign air carrier of a third country.”¹⁹³

It has been argued that “it is a peculiarity of the IATCA/IATFCPA investigation process…that the U.S. Government provides a forum for a private air carrier directly to challenge the sovereign action of a foreign government under an agreement that confers ‘bilateral rights’ on the U.S. Government.”¹⁹⁴ Indeed, the IATFCPA is a unilateral domestic measure that feeds into issues regulated bilaterally between sovereign States. However, in practice, the United States has used it strategically to address the proper implementation of the relevant international agreement, rather than as a nuclear weapon to disrupt, besides diplomatic relations, the connectivity between the two countries.¹⁹⁵ According to the DOT, “the intergovernmental process has been very successful in resolving complaints filed by U.S. airlines.”¹⁹⁶

In 2015, the “Big 3” American airlines, that is, American Airlines, United Airlines, and Delta, published a White Paper accusing the Gulf Airlines, that is, Emirates, Qatar Airways, and Etihad, of receiving illegal subsidies from their governments.¹⁹⁷ The allegations of the “Big 3” were hotly discussed in different fora, reviving the perennial issue of fair competition on a level playing field. Even though the “Big 3” did not file a formal complaint with the DOT under the IATFCPA, despite being called upon by the U.S. President to do so,¹⁹⁸ their lobbying effort resulted in the U.S. government reaching a set of “understandings” or “political commitments” with Qatar and the UAE in the direction of financial transparency.¹⁹⁹ This roundabout way of addressing competition issues may point to the significance of IATFCPA as a lever of pressure in aeropolitical relations. Indeed, as pointed out by the European Commission, “[T]he primary and practical role of IATFCPA was not to serve as an independent unilateral tool, but rather to act as a catalyst for international negotiations leading to amicable dispute resolution.”²⁰⁰

C. Assessment

Even though IATFCPA predates Regulation 2019/712 by 45 years, the two instruments are strikingly alike in their goals and means. IATFCPA sets as a goal of the U.S. negotiating policy “the greatest degree of competition that is compatible with a well-functioning international air transportation system.”²⁰¹ Equally, Regulation 2019/712 refers to “fair competition” as “an indispensable general principle in the operation of international air transport services.”²⁰² At the same time, both instruments aim at protecting U.S. and EU air carriers, respectively, which are seen as victims of an unlevel playing field. IATFCPA makes part of US policy “the strengthening of the competitive position of United States air carriers to at least assure equality with foreign air carriers, including the attainment of opportunities for United States air carriers to maintain and increase their profitability, in foreign air transportation.”²⁰³ Regulation 2019/712 provides that EU air carriers “should be enabled to compete against third countries air carriers in an environment of open and fair competition” for the sake of their “continuing competitiveness.”²⁰⁴

Looking at the means to achieve fair competition in international air transport, both instruments regulate unilaterally issues that have been addressed bilaterally by means of ASAs. Although fair competition clauses are merely hortatory in the vast majority of ASAs and as such can hardly be operationalized,²⁰⁵ both IATFCPA and the EU Regulation are designed so as not to encroach upon international agreements, but to exert pressure on foreign governments to refrain from adopting measures that harm foreign airlines to the benefit of their own national airlines. Even though the U.S. Senate has defended the legitimacy of unilateral countermeasures on the grounds that they would be permissible under general international law principles of retorsion (that is, self-defence), even if they would, in themselves, comprise a breach of the bilateral ASA, in practice the United States has refrained from either suspending a foreign carrier permit or denouncing an ASA. Instead, it has used the IATFCPA procedure to address the issue with bilateral partners and resolve it amicably.²⁰⁶

A few months before the adoption of Regulation 2019/712, Kalitta Air, a U.S. air cargo carrier, filed an IATFCPA complaint with the DOT, alleging slot and access issues at Amsterdam Schiphol Airport.²⁰⁷ The issue was resolved through cooperation between the U.S. and Dutch authorities and, as a result, the complaint was dismissed.²⁰⁸ The case caught the attention of the European Commission, which, at the 22nd meeting of the US-EU Joint Committee, “noted its interest, beyond the facts of the present complaint, in addressing the relationship between the dispute resolution mechanisms of the [US-EU] ATA and each side’s domestic mechanisms to address unfair competition” and “stated its position that the ATA provides a robust mechanism for addressing disputes and a unilateral approach should not be used for matters covered by the ATA.”²⁰⁹Unlike IATFCPA, which has been tried and tested for many years,²¹⁰ Regulation 2019/712 has not been applied as yet. Covid-19 has disrupted airline operations, but it has also resulted in billions of government subsidies to the airline industry. Therefore, it is not unlikely that as air traffic demand for international travel recovers and airline operations normalize, complaints will be filed. The reaction of the European Commission in the aforementioned Kalitta Air case, at a time when Regulation 2019/712 was about to be adopted, is indicative of the role it intends to play in international air transportation. The Commission has ascribed the successful use of the IATFCPA in leading to amicable resolution of disputes to its design, which, on the one hand, requires the Secretary of Transportation to pursue the diplomatic resolution of disputes as a first step and, on the other, gives it powerful tools to eliminate any discrimination or unfair competitive practice it finds to exist.²¹¹ Arguably, Regulation 2019/712 is tuned accordingly and, as such, can be hailed as an instance of legislative convergence between the two jurisdictions.

VII. WHAT IS IN STORE FOR REGULATORY CONVERGENCE IN COMPETITION LAW IN THE POST-COVID 19 ERA?

International civil aviation has been hit dramatically by the Covid-19 pandemic. The industry is no stranger to shocks. In its centennial history from the Paris Convention 1919 until the outbreak of coronavirus, it was exposed to World War ΙΙ, numerous terrorist attacks (with 9/11 being the most vicious thereof), economic recessions, oil crises, embargoes, and epidemics. Arguably, none of these shocks was so devastating. Unlike World War ΙΙ, which catalyzed technological innovation in a fledgling industry and the rest of the crises, whose impact has been mostly localized or temporary, Covid-19 has left the entire aviation sector at the mercy of government support for a protracted period of time. If in the midst of every crisis lies a great opportunity, then it is worthwhile exploring what is in store for the airline industry in the aftermath of Covid-19. Two scenarios can be sketched out.

The grounding of the global fleet has led to a situation where, on the one hand, a number of airlines, which are mostly smaller in size and established in poorer States with limited capability to grant subsidies, have become insolvent or are struggling for survival, and, on the other hand, a number of airlines, which are mostly large in size and established in financially robust States, have benefitted from generous packages of aid.²¹² When air traffic demand recovers, one can easily imagine a leaner industry with fewer players of asymmetric size, namely the old flag carriers and founding members of the three BGAs with their immediate partners and the remaining regional carriers and low-cost carriers. New entry can also be foreseen as the pandemic has generated cash reserves that may be invested in air transportation.

In scenario one, the eagerness of large airlines to absorb smaller players, but also of smaller airlines to merge in order to compete effectively against large airlines, may revive the issue of air transport liberalization and the relaxation of nationality restrictions. In scenario two, the fear of consolidation and the ensuing emergence of a handful of air carriers dominating the global market may fuel State protectionism and adherence to the regulatory status quo.

The aborted merger between Air Canada and Transat is an interesting case since it demonstrates the need for airline consolidation, exacerbated by Covid, as well as the opposing views on the challenges inherent in this process. A few months before the outbreak of the pandemic, Air Canada and Transat (respectively, the first and second largest providers of scheduled passenger air transport services between the European Economic Area and Canada) entered into an Arrangement Agreement whereby Air Canada would acquire Transat. The terms of the agreement were later amended to account for the economic impact of the pandemic. In February 2021, the Government of Canada approved the transaction, finding it to be in the public interest.²¹³ Two months later, the airlines announced the termination of their agreement,²¹⁴ given the European Commission’scompetition concerns and the latter’s reluctance to accept the remedy package offered by the airlines.²¹⁵Unlike the Government of Canada which noted the effects of the pandemic on air services in general and on Transat in particular, explicitly stating that the Covid-19 pandemic was a key factor in the final decision,²¹⁶ the European Commission appeared more cautious, stating that “EU merger control policy standards and framework also apply in times of severe shocks affecting the economy” and “[W]hile the coronavirus outbreak has strongly impacted the airline sector, the preservation of competitive market structures is essential to ensure that the recovery can be swift and strong.”²¹⁷ This case is interesting not least because it involved two regulators traditionally applying similar competition standards, and, in addition, committed to air transport liberalisation as a matter of the 2009 Canada-EU Air Transport Agreement,²¹⁸ who, however, assessed the Covid-19 crisis from a different angle. Arguably, the point of convergence is protectionism since both Canada and the EU sought to protect their airlines and consumers.

In both of the aforementioned scenarios, competition vigilance will be needed. In a liberalization scenario, the historical analysis of the competition authorities in airline alliance and (domestic) merger cases will provide guidance and inspiration. There is no doubt that the corpus of work produced by the U.S. Departments, as well as the European Commission will become pivotal. In a state protectionism scenario, the role of the competition authorities all over the world in preventing abuse of dominance, discriminatory practices, and illegal subsidization will be key. Arguably, the United States and the EU have the institutional checks and balances, as well as the analytical and legislative tools to lead by example and safeguard fair competition on a level playing field.

VIII. CONCLUSIONS

The issue of convergence between U.S. antitrust law and EU competition law has been examined systematically in the literature along with each jurisdiction’s goals, procedures, and policies.²¹⁹ Even though, at first sight, international air transportation could be a useful test bed for any general conclusions reached about regulatory convergence between U.S. antitrust and EU competition law, the fact that market access in air transport is not liberalized and foreign investment in national airlines remains restricted implies that this is an industry that is still regarded by national governments as possessing public utility characteristics. The public support that the entire aviation value chain received during the coronavirus pandemic points to an air transportation system that the public interest is unwilling to sacrifice in the name of competition. Therefore, the temptation to directly compare the sectoral analysis herein with the horizontal analysis on U.S. antitrust and EU competition law should be resisted. Having said that the sectoral analysis can be located within the broader comparative picture and checked for its compatibility or incompatibility.

Looking first at the definition of the relevant market, the analysis suggests that the European Commission, by considering network effects, has moved closer to the DOT. This is an interesting observation since the DOT has been criticized by the DOJ for politicizing competition law,²²⁰ whereas DG COMP’s approach is generally perceived as consumer welfare centric. In fairness to the DOT, the DOJ has also been criticized on occasion for adopting political decisions. The approval of the American Airlines/U.S. Airways merger is an example thereof.²²¹ This may suggest that decision-making is a holistic process that entails consideration of all of the factors that make up policy in a certain field.²²² The latest decisional practice of DG COMP is in harmony not only with the DOT’s practice but also with DG MOVE’s take on the geographical boundaries of competition analysis as reflected in the recent Regulation 2019/712. The fact that the regulators on both sides of the Atlantic are converging on the market definition is important not least because any conclusions reached may feed into the broader debate about the goals of antitrust/competition law and the divide between total welfare and consumer welfare.

Moving on to the issue of remedies, the recent adoption of slot divestitures by the DOT brings it closer not only to the European Commission but also to the DOJ, which has imposed slot releases on several occasions in its practice. Even though the slot releases ordered in oneworld and Delta/Aeromexico can be seen as ad hoc remedies justified by the peculiarities of each case, they are indicative of the DOT’s willingness to broaden its armoury of remedies and, if necessary, become more interventionist. U.S. agencies are generally seen as less confident in the exercise of their enforcement powers than the Commission as they are mindful of the precedents set by their actions for private litigation.²²³ Inter-agency cooperation, which was practised in oneworld, can be liberating for enforcement agencies when breaking new ground. Inter-agency cooperation can further empower competition authorities to initiate amendments to long-standing practices and policies that have become outdated. The decision of the DOT to sunset antitrust immunity in Delta/Aeromexico was not a product of cooperation with the Mexican Competition Authority but may have been influenced by the DOT’s interaction and exchange of best practice with its counterparts in foreign jurisdictions, most notably the European Commission.

Lastly, the endorsement of IATCA/IATFCPA by EU Regulation 2019/712 is indicative of the transatlantic concurrence on the issue of fair competition in international air transport. The EU and the United States each have a unilateral instrument to monitor the compliance with issues regulated either bilaterally or multilaterally in ASAs. The strategic use of the IATFCPA over the years as a lever of pressure in aeropolitical relations is reflected in the cautious drafting of Regulation 2019/712 which goes to great lengths not to encroach upon national sovereignty but to assist the EU airlines and the EU Member States in addressing distortions of competition in international air transport effectively. Despite the institutional differences between the two jurisdictions and the 45 years that separate the two instruments, legislative convergence is in the air. This is an important finding considering that typical analyses of the convergence between U.S. antitrust and EU competition law focus on narrower instruments that operationalize the U.S. Sherman and Clayton Acts, as well as the competition provisions of the TFEU, rather than on broader instruments that delineate the overarching policy on international air transportation. And yet, it is such broader instruments that capture the big picture.

This paper has taken stock of the regulatory convergence between U.S. antitrust and EU competition law in international air transport. It has highlighted the characteristics of the industry that interfere with convergence and has singled out instances where regulatory and legislative convergence have materialized. It has also provided the background against which regulatory convergence has been examined, pointing to the importance of uniform rules in sectors that are inherently global, such as aviation. The paper aspires to contribute not only to the regulatory convergence in competition law but also to the comprehension of air transport regulation more broadly and the longstanding debate on air transport liberalization.

Footnotes

1

For a detailed analysis thereof, see Antigoni Lykotrafiti, What does Europe do about Fair Competition in International Air Transport? A Critique of Recent Actions, 57 CMLRev. 831 (2020).

2

Máté Gergely, Fair Competition in International Air Transport, 45(1) Air Space L. 1 (2020).

3

The International Civil Aviation Organization (ICAO) has stated that “there is currently no commonly accepted definition of the conditions constituting a level playing field” and “it is unlikely that consensus on a comprehensive definition can be achieved at this time, given the widely different circumstances of States and their aviation sectors…”. See ICAO Working Paper ATConf/6-WP/4 (Fair Competition in International Air Transport), 4 December 2012. See also, Mike Tretheway & Robert Andriulaitis, What Do We Mean by A Level Playing Field in International Aviation? 43 Transp. Policy 96 (2015).

4

The 2012 Organisation for Economic Cooperation and Development (OECD) Recommendation of the Council on Regulatory Policy and Governance recognized the importance of international regulatory cooperation (IRC), encouraging States “[I]n developing regulatory measures, [to] give consideration to all relevant international standards and frameworks for co-operation in the same field and, where appropriate, their likely effects on parties outside the jurisdiction” (Principle 12, p. 5, at: <https://www.oecd.org/governance/regulatory-policy/49990817.pdf>). The OECD has stated that “[R]egulatory harmonisation is the ultimate IRC approach to boost the effectiveness of regulation dealing with transnational market failures and to dismantle trade barriers to regulatory divergence” and that “[T]he European Union stands out as an emblematic example of harmonisation for the breadth and depth of its regulatory and economic integration.” The OECD has further acknowledged that “supra-nationalism remains the exception” and that “[T]his reflects the fact that full regulatory harmonisation may be too costly and a disproportionate approach to addressing certain challenges” (International Regulatory Co-operation, Adapting Rulemaking for an interconnected world, Policy Brief, October 2018, OECD Regulatory Policy Division, at: <https://www.oecd.org/gov/regulatory-policy/international-regulatory-cooperation-policy-brief-2018.pdf>).

5

Hesiod, i, lines 939–943 and 982–983. Original text available in the Digital Library of the Ancient Greek Language, at: <https://www.greek-language.gr/digitalResources/ancient_greek/library/browse.html?text_id=2>. See English translation by M.L. West, The World’s Classics, Oxford University Press, 1988, at: <https://monoskop.org/images/a/a3/Hesiod_Theogony_Works_and_Days_trans_West.pdf>.

6

C. Tristan Stayton, What Does Convergent Evolution Mean? The Interpretation of Convergence and its Implications in the Search For Limits to Evolution. 5(6) Interface Focus (2015).

7

According to the Asia-Pacific Economic Cooperation Life Sciences Innovation Forum, Regulatory Harmonization Steering Committee, regulatory convergence “represents a voluntary process whereby the regulatory requirements across economies become more aligned (or more similar) over time as a result of the gradual adoption of harmonized international guidances and standards, and internationally recognized scientific principles, practices, and procedures,” at: <https://www.apec.org/docs/default-source/satellite/RHSC/General-RHSC-Documents/APEC_RHSC_Strategic-Framework_vF.pdf>.

8

On the elusive meaning of harmonization in particular, see Mads Andenas, Camilla Baasch Andersen & Ross Ashcroft, Towards a Theory of Harmonisation in MADS ANDENAS & CAMILLA BAASCH ANDERSON (Ed.),THEORY AND PRACTICE OF HARMONISATION (Edward Elgar, 2012), Chapter 29, pp. 572–594.

9

For a discussion of air transport liberalization, see Antigoni Lykotrafiti, Liberalisation of International Civil Aviation—Charting the Legal Flightpath, 43 Transp. Policy 85 (2015).

10

US-EU Air Transport Agreement (25 May 2007, OJ L 134/4, 2007), as amended by Protocol of March 25, 2010 (OJ L 223/3, 2010).

11

Brian Havel & Gabriel Sanchez, The Emerging Lex Aviatica, 42 Georgetown J. Int. Law, 639 (2010–2011).

12

Council Regulation (EEC) No 3975/87 of 14 December 1987 laying down the procedure for the application of the rules on competition to undertakings in the air transport sector (OJ L 374/1, 31.12.1987) granted the Commission implementing powers to apply Article 101 of the Treaty on the Functioning of the European Union (TFEU) with respect to air transport between EU airports. Air transport between EU airports and airports in third countries was excluded from the scope of that regulation. This changed on 1 May 2004, when Regulation (EC) No 1/2003 entered into force, granting the Commission implementing powers to apply Article 101 of the TFEU to all air transport services. See Council Regulation (EC) No 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1/1, 04.01.2003.

13

Rachel Baird, Political and Commercial Interests as Influences in the Development of the Doctrine of the Freedom of the High Seas, 12 Queensland U Tech LJ 274 (1996).

14

See definition of nine freedoms of the air on the website of the ICAO, extracted from the Manual on the Regulation of International Air Transport (Doc 9626, Part 4), at: <https://www.icao.int/Pages/freedomsAir.aspx>.

15

As per the World Trade Organisation (WTO), “[T]he granting of cabotage is an extremely rare feature in World Air Services Agreements. It appears in only two agreements, that is, China-Albania and New Zealand-Brunei Darussalam, which cover very little traffic.” See WTO, Council for Trade in Services, Second Review of the Air Transport Annex, Developments in the Air Transport Sector (Part Two), Quantitative Air Services Agreements Review (QUASAR), Volume I, S/C/W/270/Add.1, 30 November 2006, at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=Q:/S/W00.pdf&Open=True. But see also Article 3 of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Singapore concerning Air Services (21 November 2007), at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/243405/7362.pdf. As submitted by Alan Khee-Jin Tan in his article: Singapore’s New Air Services Agreements with the E.U. and the U.K.: Implications for Liberalization in Asia, 73 J Air L & Com 351 (2008), the Parties have detailed the exchange of full cabotage rights in a confidential Memorandum of Understanding.

16

Article 7 of the Convention on International Civil Aviation opened for signature 7 December 1944, 61 Stat. 1180, 15 U.N.T.S. 295 (entered into force Apr. 7, 1947).

17

See, for example, Article 4 of Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community (Recast), OJ L 293/3, 31.10.2008, consolidated text at: https://eur-lex.europa.eu/eli/reg/2008/1008/2020-12-18.

18

See, for example, Article 3(6) of the US-EU Air Transport Agreement, supra note 10.

19

See, for example, Art. 23 (Termination) of US-EU Air Transport Agreement, supra note 10.

20

Compare, for example, Art. 11 of the Agreement between the Government of the Kingdom of Great Britain and Northern Ireland and the Government of the United States of America Concerning Air Services, 23 July 1977, 28 U.S.T. 5367, providing that “the designated…airlines… shall have a fair and equal opportunity to compete…”, to the detailed provisions regulating fair competition in Article 2 (Fair and equal opportunity), Article 14 (Government subsidies and support), Article 20 (Competition) and Annex 2 (Concerning cooperation with respect to competition issues in the air transportation industry) of the US-EU Air Transport Agreement, supra note 10. On the evolution of the wording of fair competition clauses in ASAs, see Lykotrafiti, supra note 1.

21

Agreement between the Government of the United States of America and the Government of the United Kingdom Relating to Air Services Between Their Respective Territories, Feb. 11, 1946, US-UK; 60 Stat. 1499.

22

See Article 20(3), in conjunction with Annex 2, Article 2(4) of US-EU Air Transport Agreement, supra note 10.

23

Pablo Mendes de Leon, Airlines as Allies—How to Manage the Market? in JAN WALULIK (Ed.), HARMONISING REGULATORY AND ANTITRUST REGIMES FOR INTERNATIONAL AIR TRANSPORT (Routledge, 2019), at 3.5, p. 27.

24

The case is concerned with a price-fixing cartel in the airfreight services market that operated in the period 1999–2006. The conspiracy among multiple major airlines was revealed after an application for immunity under the 2002 European Commission Leniency Notice that resulted in a joint investigation by the US Department of Justice (DOJ) and DG COMP. In the US, 22 airlines and 21 executives were charged with antitrust offences, and more than $1.8 billion was recovered in criminal fines. In the EU, 11 airlines were recently ordered by the General Court to pay some €730 million in fines. Both jurisdictions applied their antitrust law extraterritorially to conduct performed (at least in part) in third countries by foreign airlines, since it had anticompetitive effects within their jurisdictions. The airlines argued that the regulatory regimes in place in several jurisdictions encouraged coordination between carriers on prices and surcharges and, in addition, many bilateral ASAs provided that tariffs were to be collectively agreed by designated airlines. In view of this uncertainty and local encouragement, the Commission should regard the regulatory regimes as a mitigating circumstance. The Commission pointed out that if a national law merely encourages or makes it easier for undertakings to engage in autonomous anticompetitive conduct, those undertakings remain subject to Article 101 of the TFEU. However, it took into account as a mitigating circumstance the fact that the anticompetitive conduct had been encouraged by the regulatory regime, and in some cases, its application and reduced the fine for all airlines by 15 percent.

In the United States, the Foreign Trade Antitrust Improvements Act (FTAIA), as interpreted by the U.S. Supreme Court in F. Hoffmann-LaRoche Ltd. v Empagran S.A., 542 US 155, 162 (2004), “initially lays down a general rule placing all (non-import) activity involving foreign commerce outside the Sherman Act’s reach” to “then bring[s] all (non-import) activity involving foreign commerce within the Sherman Act’s reach, provided that the conduct both (i) sufficiently affects American commerce, that is,, it has a direct, substantial, and reasonably foreseeable effect on American domestic import, or (certain) export commerce, and (ii) has an effect of a kind that antitrust law considers harmful, that is,, the effect must ‘giv[e] rise to a [Sherman Act] claim’. In the EU, the European Court of Justice confirmed in Intel v. Commission (Judgment of 6 September 2017, C-413/14 P, ECLI:EU:C:2017:632) that “the Commission’s jurisdiction under public international law to find and punish conduct adopted outside the European Union may be established on the basis of either the implementation test or the qualified effects test.” For a summary of the EU approach, see paragraph 1042 of the 2017 European Commission decision in Case AT.39258—Airfreight, 17.3.2017 C(2017) 1742 final.

For analysis, see Solange Leandro, The Tale of the Airfreight Cartel Case, 45 AIR SPACE L. 201 (2020); and, Achim Puetz, ‘Extraterritoriality’ in European Law: Airfreight and Beyond, 46(6) AIR SPACE L. 763 (2021). All documents adopted by the European Commission can be found under the case number: AT.39258 Airfreight, at: <https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_AT_39258>. See also US DoJ Press Release 20–29, Former Air Cargo Executive Extradited from Italy for Price-Fixing—Case Marks Antitrust Division’s Most Recent Successful Extradition on Antitrust Charges, 13.01.2020, at: <https://www.justice.gov/opa/pr/former-air-cargo-executive-extradited-italy-price-fixing>; and Court of Justice of the European Union Press Release No 53/22, 30.03.2022, Cartel on the airfreight market: the General Court rules on actions brought by multiple airlines at: <https://curia.europa.eu/jcms/upload/docs/application/pdf/2022-03/cp220053en.pdf>.

25

Richard Whish and David Bailey suggest that “[A]s a general proposition competition law consists of rules that are intended to protect the process of competition in order to maximize consumer welfare.” See Competition Law, 7th ed., Oxford, 2012, p.1. See also the more recent 10^th edition of the authors’ book, where it is pointed out that “[C]ompetition law is about the economic analysis of markets within a legal process,” p. 3.

26

Visit: <https://europa.eu/european-union/about-eu/figures/living_en>.

27

Visit: < https://www.census.gov/geographies/reference-files/2010/geo/state-area.html>.

28

Visit: < https://www.census.gov/popclock/>.

29

See eurostat newsrelease 84/2020–19 May 2020, at: <https://ec.europa.eu/eurostat/documents/portlet_file_entry/2995521/2-19052020-BP-EN.pdf/bb14f7f9-fc26-8aa1-60d4-7c2b509dda8e>.

30

eurostat, Air transport statistics, November 2020, at: <https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Air_transport_statistics>.

31

U.S. Department of Transportation, Bureau of Transportation Statistics, 2019 Traffic Data for U.S. Airlines and Foreign Airlines U.S. Flights—Final, Full-Year, Thursday, June 11, 2020, at: <https://www.bts.gov/newsroom/final-full-year-2019-traffic-data-us-airlines-and-foreign-airlines>.

32

Keynote speech, International Aviation Club, Washington DC, 10 July 2017, Looking Beyond 10 Years of EU-US open skies, Presentation by Henrik Hololei, at: <https://ec.europa.eu/transport/sites/default/files/2017-07-10-speech-aviation-club-washington.pdf>.

33

Ibid.

34

Sherman Act, 15 U.S.C. §§ 1–7 (2018).

35

Clayton Act, 15 U.S.C. §§ 12–27 (2018).

36

The Treaty of Rome has been amended on a number of occasions, and today, it is called the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012, pp. 47–390.

37

Ibid.

38

The original Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (OJ L 395/1, 30.12.1989. Corrected version in OJ L 257/13, 21.09.1990) has now been amended by Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24/1, 29.01.2004.

39

See, most notably, Judgment of 5 February 1963, Van Gend en Loos/Administratie der Belastingen (26/62, ECR 1963 p. 1), where the Court ruled that “[T]he European Economic Community constitutes a new legal order of international law for the benefit of which the States have limited their sovereign rights, albeit within limited fields, and the subject of which comprise not only Member States but also their nationals.” See also the seminal Judgment of 15 July 1964, Costa/E.N.E.L. (6–64, ECR 1964 p. 585).

40

Anu Bradford, Adam S. Chilton, Katerina Linos & Alex Weaver, The Global Dominance of European Competition Law Over American Antitrust Law, 16(4) J. EMPIR. LEGAL STUD. 731 (2019).

41

Ibid.

42

Article 1(1) of Agreement between the United States of America and the Commission of the European Communities regarding the application of their competition laws, OJ L 95/47, 27.04.1995, as corrected by Decision of the Council and the Commission of 10.04.1995, OJ L 95/45, 27.04.1994.

43

Agreement between the European Communities and the Government of the United States of America on the application of positive comity principles in the enforcement of their competition laws, OJ L 173/28, 18.06.1998.

44

Council Regulation (EC) No 411/2004 of 26 February 2004 repealing Regulation (EEC) No 3975/87 and amending Regulations (EEC) No 3976/87 and (EC) No 1/2003, in connection with air transport between the Community and third countries, OJ L 68/1, 06.03.2004.

45

In the Matter of Defining «Open Skies», Docket No. 48130, Order 92-8-13, 05.08.1992.

46

See the first-ever open skies agreement between the US and the Netherlands, where the Parties stated that “It is [their] intent to give sympathetic consideration, in the context of the Open Skies agreement, to the concept of commercial cooperation and integration of commercial operations between airlines of the United States and the Netherlands through commercial agreements or arrangements, provided that such agreements or arrangements are in conformity with the applicable antitrust and competition laws; and to provide fair and expeditious consideration to any such agreements or arrangements filed for approval and antitrust immunity.” The open skies agreement between the parties was implemented by means of a Memorandum of Consultations, which built on the pre-existing 1957 Air Transport Agreement and the 1978 Protocol thereto. On the status of the arrangements made in 1992, see Pablo Mendes de Leon, Before and After the Tenth Anniversary of the Open Skies Agreement Netherlands-US of 1992, 27 AIR SPACE L. 280 (2002).

47

For a detailed account of the US external aviation policy, see, Antigoni Lykotrafiti, A comprehensive Study of Air Transport Liberalisation through the Lens of Strategic Airline Alliances, 44 AIR SPACE L. 347 (2019).

48

See full list of US open skies partners at: <https://www.state.gov/open-skies-partners/>.

49

See Compendium of antitrust immunity cases administered by the Secretary of Transportation pursuant to 49 U.S.C. 41308–41309, at: <https://www.transportation.gov/office-policy/aviation-policy/airline-alliances-operating-active-antitrust-immunity>.

50

Guillaume Burghouwt, Pablo Mendes de Leon & Jaap de Wit, EU Air Transport Liberalisation Process, impacts and future considerations, International Transport Forum Discussion Paper No. 2015–04, available at: https://www.itf-oecd.org/sites/default/files/docs/dp201504.pdf.

51

Commission Communication: Developing the agenda for the Community’s external aviation policy, COM (2005) 79 final, 11.03.2005.

52

Commission Communication: The EU’s External Aviation Policy—Addressing Future Challenges, COM (2012) 556 final, 27.09.2012.

53

Supra note 10.

54

See Article 20 (Competition), in conjunction with Annex 2 (Concerning Cooperation With Respect to Competition Issues in the Air Transportation Industry), Article 2 (Purpose) of the US-EU ATA, ibid.

55

The 2009 Canada-EU Air Transport Agreement is available at: <https://ec.europa.eu/transport/sites/transport/files/modes/air/international_aviation/country_index/doc/canada_final_text_agreement.pdf>.

56

Agreement on air transport between the European Union and its Member States, of the one part, and the State of Qatar, of the other part, OJ L 391/3, 5.11.2021.

57

The EU-ASEAN Air Transport Agreement was signed on October 22, 2022. See European Commission Press Release IP/22/6126, Aviation: Landmark EU-ASEAN agreement to connect 1.1 billion people, at: <file:///C:/Users/ant_a/Downloads/Aviation__Landmark_EU_ASEAN_agreement_to_connect_1.1_billion_people.pdf>.

58

Paras 27 and 50 of Commission Communication, supra note 52.

59

Euro-Mediterranean Aviation Agreement between the European Union and its Member States, of the one part, and the Republic of Tunisia, of the other part, Brussels, 11 June 2021, 7745/21. Draft available at: https://data.consilium.europa.eu/doc/document/ST-7745-2021-INIT/en/pdf.

60

Lykotrafiti, supra note 1.

61

H.S. Rutger Jan Toe Laer, Kick-starting Cross-border Alliances: Approval and Clearance; the Past, the Present and the Future, 32 AIR SPACE L. 287 (2007).

62

See Brian Havel & Gabriel Sanchez, THE PRINCIPLES AND PRACTICE OF INTERNATIONAL AVIATION LAW, Cambridge University Press (2014), Chapter 4.7.2., p. 161, asserting that “[M]etal neutrality was not a DOT prerequisite for antitrust immunity during the decade-and-a-half before 2008 (when open skies ASAs and code-sharing sufficiently justified immunity).”

63

Lykotrafiti, supra note 47.

64

Pablo Mendes de Leon, Airlines as Allies—How to Manage the Market? in JAN WALULIK (Ed.), HARMONISING REGULATORY AND ANTITRUST REGIMES FOR INTERNATIONAL AIR TRANSPORT (Routledge, 2019).

65

William Gillespie & Oliver M. Richard, Antitrust Immunity and International Airline Alliances, Economic Analysis Group Discussion Paper 11–1 (2011), at: <https://www.justice.gov/atr/antitrust-immunity-and-international-airline-alliances>.

66

Air Asia, a low-cost long-haul airline, is a notable exception thereof. Norwegian Air, a LCC that briefly operated flights between the EU and the United States, discontinued all long-haul operations, including transatlantic service, soon after the outbreak of the Covid-19 pandemic due to longstanding financial woes. On the potential of the low-cost long-haul business model, see: Sascha Albers, Jost Daft, Sebastian Stabenow & Volker Rundshagen, The Long-Haul Low-cost Airline Business Model: A Disruptive Innovation Perspective, 89 J. AIR TRANSP. MANAG. 1 (2020).

67

Lykotrafiti, supra note 47.

68

The literature on airline business models is fluid. See, for example, Gui Lohmann & Tay T.R. Koo, The Airline Business Model Spectrum, 31 J. AIR TRANSP. MANAG. 7 (2013).

69

For a detailed account thereof, see BRIAN F. HAVEL, BEYOND OPEN SKIES—A NEW REGIME FOR INTERNATIONAL AVIATION, (Kluwer, 2009), Chapter 4, pp. 259–263 and pp. 285–287.

70

Joint Application of Air Canada et al. to Amend Order 2007-2-16 so as to Approve and Confer Antitrust Immunity, Dkt. No. OST-2008-0234, (Show Cause) Order 2009-4-5, 07.04.2009, at IV. A. p. 7.

71

Ibid, at IV. A. 3., pp. 10–11.

72

Ibid, at IV. E. 1, p. 20.

73

Ibid, at IV. D., p. 16.

74

Joint Application of Virgin Atlantic Airways, Ltd., Delta Airlines, Inc., Société Air France, Koninklijke Luchtvaart Maatschappij N.V for Approval of and Antitrust Immunity for Alliance Agreements under 49 U.S.C. §§ 41308 and 41309, Final Order, Docket DOT-OST-2013-0068, Order 2019-11-14, 21.11.2019.

75

Ibid.

76

Ibid.

77

This is not to suggest that EU law prescribes a step-by-step analysis. To the contrary, the definition of the relevant market may be skipped altogether; for example, it may be possible to show anti-competitive effects directly by analyzing the conduct of the parties to the agreement on the market. See paragraph 27 of the Guidelines on the application of Article 101(3) (formerly 81(3)) of the Treaty, OJ C 101/97, 27.04.2004.

78

The European Commission decision approving the merger between Air France and KLM provides a good illustration of the methodology followed to define the relevant market. See Case No COMP/M.3280—Air France/KLM, 11.02.2004. All documents pertaining to this case are accessible at: <https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=2_M_3280>. See also European Commission decision of 12.02.2019 in Case M.8964—Delta/Air France-KLM/Virgin Group/Virgin Atlantic (OJ C 15/01, 14.01.2021) for an application of the “airport-by-airport” approach in merger cases where the target is an important slot portfolio rather than an active air carrier. This approach helps the Commission determine whether there is a risk of foreclosure from access to airport infrastructure services in cases where the parties’ slot portfolios overlap. Under this approach, every combination of an airport or city of origin to an airport or city of destination is defined as a distinct market. In its decision authorizing the acquisition by Air France/KLM of a 31 percent joint-controlling interest in Virgin Atlantic, the Commission stated that “such a market definition reflects the demand-side perspective whereby passengers consider all possible alternatives of travelling from a city or origin to a city of destination, which they do not consider substitutable for a different city pair. The effects of a transaction on competition are thus assessed for each O&D separately,” para. 25. For a comparison between the EU and the US approach on airport substitutability, see Una McLaughlin, Head in the Clouds? Is the European Commission’s Analysis of the “Relevant Market” in Airline Mergers Appropriate?, 39 Ann. Air & Space L 595 (2014); and, Alexa Naumovich, Domestic Airline Mergers and Defining the Relevant Market: From Cities to Airports, 83 J Air L & Com 839 (2018).

79

Case COMP/AT.39595—Continental/United/Lufthansa/Air Canada, 23 May 2013, at 4.2. paragraph 17, pp. 7–8.

80

Ibid., at 4.2., paragraph 18, p. 8.

81

Ibid, at 4.2., paragraph 19, p. 8.

82

For a critique of the theory of double marginalization, see Hubert Horan, “Double Marginalization” and the Counter-Revolution Against Liberal Airline Competition, 37 Transp. L.J. 251 (2010).

83

Supra note 79, at 4.3., paragraph 57, p. 17 and paragraph 74, p. 20.

84

Paragraph 43 of the Guidelines on the application of Article 101(3) TFEU, supra note 77.

85

At 4.3., paragraph 58, p. 17, supra note 79.

86

See analysis by Manu Mohan, Ray of Hope for Airline Alliances: Consideration of Out of Market Efficiencies by the European Commission, 39(2) AIR SPACE L. 155 (2014).

87

At 4.3.2, paragraphs 55–80, pp. 16–21, supra note 79.

88

Francesco Ducci, Out-of-Market Efficiencies, Two-Sided Platforms, and Consumer Welfare: A Legal and Economic Analysis, 12(3) J. COMPET. LAW ECON. 591 (2016).

89

Regulation (EU) 2019/712 of the European Parliament and of the Council of 17 April 2019 on safeguarding competition in air transport, and repealing Regulation (EC) No 868/2004, OJ L 123/4, 10.05.2019.

90

Recital 15, ibid.

91

Article 12(1) and (3), ibid.

92

Dejan Pavlović & Danica Babić, Recent Trends in Assessment of Proposed Consolidations in EU Airline Industry—From Discretion to Arbitrariness, 69 TRANSP. POLICY 65 (2018).

93

Council Regulation (EC) No 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1/1, 04.01.2003.

94

See Article 9 of Regulation (EC) No 1/2003, ibid. See also Commission notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, OJ C 308/6, 20.10.2011 (2011/C 308/06), which provides that the main difference between a prohibition decision and a commitment decision is that the former contains a finding of an infringement while the latter makes the commitments binding without concluding whether there was or still is an infringement.

95

Kostis Kostopoulos, Commitment decisions: The New Kind of Settlement in European Competition Law. Application in Air Transport, 34 AIR SPACE L. 13 (2009).

96

See Article 8(1) and (2) of Regulation (EC) No 139/2004, supra note 38.

97

See, for example, the Commission decision approving aid to Lufthansa under the State Aid Temporary Framework: State Aid SA.57153 (2020/N)—Germany—COVID-19—Aid to Lufthansa, C(2020) 4372 final, 25.6.2020, at: <https://ec.europa.eu/competition/state_aid/cases1/202044/286587_2201652_220_2.pdf>.

98

Article 8(2) of Regulation (EC) No 793/2004 amending Council Regulation (EEC) No 95/93 on common rules for the allocation of slots at Community airports, OJ L 138/50, 30.4.2004. The International Air Transport Association’s Worldwide Airport Slot Guidelines, which constitute the industry standard recognized by many regulatory authorities for the management and allocation of airport capacity, establish a number of key principles of slot allocation, including the 80/20 rule (or historic precedence). See part 1(7)(2)(f) of the 2020 Guidelines, at: https://www.iata.org/contentassets/4ede2aabfcc14a55919e468054d714fe/wasg-edition-1-english-version.pdf.

99

Consolidated text: Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at Community airports (OJ L 14, 22.1.1993, pp. 1–6), 30.10.2021, Article 8a(1), at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:01993R0095-20211030&from=EN.

100

The Commission, in its Communication on the application of Regulation (EEC) No 95/93 on common rules for the allocation of slots at Community airports, as amended (COM(2008) 227 final, 30.4.2008), has stated: “[T]he text of the current Regulation is silent on the question of exchanges with monetary and other consideration to reflect differences in value between slots at different times of day and other factors. Given that there is no clear and explicit prohibition of such exchanges, the Commission does not intend to pursue infringement proceedings against Member States where such exchanges take place in a transparent manner, respecting all the other administrative requirements for the allocation of slots set out in the applicable legislation,” section 5, p. 6.

101

See Advice for the Department for Transport on competition impacts of airport slot allocation, Competition & Markets Authority, December 2018, at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/888765/CMA_advice_on_DfT_on_competition_impacts_of_airport_slot_allocation.pdf.

102

See para. 107 of Commission Decision of 14.07.2010 relating to a proceeding under Article 101 TFEU and Article 53 of the EEA Agreement, Case COMP/39.596—BA/AA/IB.

103

See Report by the European Commission and the US DOT of 16.11.2010: “Transatlantic Airline Alliances: Competitive Issues and Regulatory Approaches,” at: <https://ec.europa.eu/competition/sectors/transport/reports/joint_alliance_report.pdf>.

104

See paragraphs 62–66 of the Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, OJ C 267/1, 22.10.2008. See also paragraph 113 of the Commission decision in the STAR alliance case (supra note 79), where the definition of a slot under the parties’ final commitments is clarified.

105

See section 1.2.11. of Final Commitments to the European Commission in Case COMP/F-1/39.595—AC/CO/LH/UA. All documents pertaining to the STAR Alliance case are available at: <https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39595>. See section 1.2.12. of the Final Commitments to the European Commission in Case COMP/F-1/39.596—BA/AA/IB. All documents pertaining to the oneworld Alliance case are available at: <https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39596>. See section 1.2.12. of the Final Commitments to the European Commission in Case COMP/39.964—AF/KL/DL/AZ. All documents pertaining to the so-called “Transatlantic Joint Venture” within the SkyTeam Alliance are available at: <https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39964>.

106

The UK CMA recently adopted interim measures to replace the expired slot release agreements under the oneworld 2010 Commitment Decision with new agreements for an additional three years. The CMA is currently investigating the Atlantic Joint Business Agreement between American Airlines, members of International Consolidated Airlines Group (British Airways, Iberia and Aer Lingus) and Finnair under Chapter I of the UK Competition Act 1998. All documents pertaining to the file are available at: <https://www.gov.uk/cma-cases/investigation-of-the-atlantic-joint-business-agreement#history>.

107

Centre for Aviation, The experience with a decade of North Atlantic airline joint ventures, 29.04.2019, at: https://centreforaviation.com/analysis/airline-leader/the-experience-with-a-decade-of-north-atlantic-airline-joint-ventures-470150.

108

49 U.S. Code § 41309 (a)—Cooperative agreements and requests. See also 49 U.S. Code § 41308 (a)—Exemption from the antitrust laws (Pub. L. 103–272, § 1(e), July 5, 1994, 108 Stat. 1128).

109

Supra note 103. The Commission Notice on remedies provides for carve-outs in the context of a divestiture of a business to a suitable purchaser. However, the concept of a carve-out under the Notice is different from the relevant concept in DOT decisions, since it is inextricably linked with divestitures. See paragraphs 35 and 36 of the Notice (supra note 104).

110

In STAR alliance, DOT stated: “we will not impose carve outs in markets that only shift from four to three, or from three to two, nonstop competitors, as we are not convinced that these pose a risk of substantial reduction in competition,” supra note 79, at IV. E, p. 18.

111

Lykotrafiti, supra note 47.

112

See Alitalia, Czech Airlines, Delta, KLM, Northwest and Air France, Joint Application for Approval of and Antitrust Immunity for Alliance Agreements, Dkt. No. OST-2007-28644, Show Cause Order 2008-4-17 (19 April 2008), at 1: “[T]he Department proposes to grant Air France, Alitalia, Czech, Delta, KLM, and Northwest…authority to operate an immunized alliance in transatlantic markets. The proposed alliance features, at its core, an integrated joint venture…”.

113

Supra note 79, at I., p. 1.

114

American Airlines, Inc., British Airways PLC, Finnair OYJ, Iberia Líneas Aéreas de España, S.A., Royal Jordanian Airlines Joint Application, Show Cause Order, Dkt. No. OST-2008-0252, Order 2010-2-8 (Dep’t of Transp. Feb., 13, 2010), at 1, 2 and 5.

115

See Joint Application of Alitalia, Czech Airlines, Delta, KLM, Northwest and Air France for Approval of and Antitrust Immunity for Alliance Agreements, Dkt. No. OST-2007-28644, Final Order 2008-5-32 (May 22, 2008), at pp. 3–4. See also Joint Application of Air Canada et al, Docket OST-2008-0234, Order 2009-7-10, July 10, 2009, at IV. E. 1. p. 20. Last, see Order 2010-2-8, at IV. B. 3(b), p. 28, ibid.

116

See Order 2008-5-32 and Order 2009-7-10, ibid. See also Final Order 2010-7-8 (oneworld), at IV.E.3, pp. 20–21.

117

See Docket DOT-OST-2008-0252 and Docket DOT-OST-2002-13861, Order 2010-7-8, 20.07.2010.

118

See Show Cause Order 2010-2-8, at IV.B.3(b), supra note 114.

119

Agreement between the Government of the Kingdom of Great Britain and Northern Ireland and the Government of the United States of America Concerning Air Services, July, 23, 1977, 28 U.S.T. 5367.

120

See, for example, the U.S.-UK Alliance Case, DKT. No. OST-2001-11029, Order to Show Cause (25 January 2002).

121

Joint Application of Delta Air Lines and Aerovias de Mexico, Final Order 2016-12-13, 14.12.2016, Docket DOT-OST-2015-0070.

122

See Kevin Kinder, Friendly Skies or Turbulent Skies: An Evaluation of the U.S. Airline Industry and Antitrust Concerns, 91 SOUTH. CALIF. LAW R. 943 (2018). See also Lykotrafiti, supra note 47.

123

See European Airport Coordinators Association, at: <https://www.euaca.org/FTableList.aspx?list=87>.

124

See Federal Aviation Administration, Slot Administration—U.S. Level 3 Airports, at: <https://www.faa.gov/about/office_org/headquarters_offices/ato/service_units/systemops/perf_analysis/slot_administration/slot_administration_schedule_facilitation/level-3-airports/>.

125

Daniel Gifford & Robert T. Kudrle, How is Competition Policy Coping with Atlantic Area Airline Markets?, MICH. ST. LAW R. 619 (2018). See also, Federico Ciliberto & Jonathan W. Williams, Limited Access to Airport Facilities and Market Power in the Airline Industry, 53(3) J. LAW ECON. 467 (2010).

126

Yongjoon Park, Structural Remedies in Network Industries: An Assessment of Slot Divestitures in the American Airlines/US Airways Merger (October 12, 2020). Available at SSRN: https://ssrn.com/abstract=3710262 or http://dx.doi.org/10.2139/ssrn.3710262.

127

Una McLaughlin, Identifying Three Waves in the European Commission’s Increasingly Strict Approach to Airline Remedies, 14(2) ISSUES AVIATION L. & POL’Y 217 (2015).

128

Judgment of 4 July 2006, easyJet/Commission (T-177/04, ECR 2006 p. II-1931) ECLI:EU:T:2006:187. See also EU merger remedies by Practical Law Competition, at: https://uk.practicallaw.thomsonreuters.com/5-422-4975?transitionType=Default&contextData=(sc.Default)&firstPage=true.

129

Supra note 107.

130

Press release, CMA acts to protect competition on UK-US airline routes, 17 September 2020, at: <https://www.gov.uk/government/news/cma-acts-to-protect-competition-on-uk-us-airline-routes>.

131

Supra note 107

132

Ibid.

133

Type I and Type II error analysis is a method that can serve as a logical aid or conceptual base for structuring certain problems and implicitly analyzing the strategies when a more detailed quantitative analysis has been rejected. It owes its name—Type I and Type II errors—to Philip D. Olson who put forward this typology in Notes: Decision Making Type I and Type II Error Analysis, 20(1) CAL. MGMT. REV. 81 (1977). Type I errors basically denote false positives, whereas Type II errors denote false negatives. See Bradford et al, arguing that “The US is more fearful of false positives (where the government restricts competitive behaviour) whereas the EU is more fearful of false negatives (where the government fails to restrict anti-competitive behavior),” supra note 40. See also Fred Lazar, who argues that “[I]n granting immunity, the U.S. DOT and its counterparts in other countries faced the classic type I and type II errors in decision-making. By not granting immunity, the DOT risked preventing joint ventures that might have net positive effects for consumers - a type II error. On the other hand, when granting immunity, the DOT risked approving joint ventures that might have net negative effects - a type I error,” Fred Lazar, Antitrust Immunity for Joint Ventures Among Alliance Airlines, 83(4) J. AIR LAW & COM. 787 (2018).

134

Geert Goeteyn, Issues Raised by the US Department of Transportation’s Decision in the Skyteam Case: A Comparative Analysis, 31(4–5) AIR SPACE L. 291 (2006).

135

See, for example, Order 2010-2-8, at IV. B. 3(b), p. 28, supra note 114.

136

See US DOT, Joint Application of Alitalia, Czech Airlines, Delta Air Lines, KLM, Northwest Airlines, and Air France for Approval and Antitrust Immunity for Alliance Agreements, Dkt. No. OST-2004- 19214, Order to Show Cause 7 (22 December 2005), at 2, 3, 34, 35 and 36.

137

Lykotrafiti, supra note 47.

138

Supra note 93.

139

Antitrust Manual of Procedures—Internal DG Competition working documents on procedures for the application of Articles 101 and 102 TFEU, November 2019, p. 9/13, section 3.4.3., para. 51, at: <https://ec.europa.eu/competition/antitrust/antitrust_manproc_11_2019_en.pdf>.

140

Supra note 94, section 4, para. 115. On the construction of the proportionality test by the European Court of Justice, see Antitrust Manual of Procedures, page 8/13, section 3.4.2., para. 46, ibid.

141

See para. 21 of the Commission Notice on remedies, supra note 104. The template for commitments to the European Commission can be accessed at: <https://ec.europa.eu/competition-policy/system/files/2021-03/template_commitments_en.pdf>.

142

Supra note 139, page 7/13, section 3.4.1., para. 40.

143

Supra note 104, at section E. III., para. 39.

144

Ibid, at section B., para. 5.

145

Ibid, Section F, paragraphs 43–44.

146

Supra note 139, page 9/13, section 3.4.3., para. 52.

147

Paragraph 237 of Commission decision in Case COMP/39.596, supra note 102.

148

Paragraph 236, ibid.

149

See sections 8.3 and 8.5 of the Final Commitments in Case COMP/F-1/39.595—AC/CO/LH/UA, in conjunction with paragraphs 96–97 and 138 of the Commission decision, supra note 105.

150

See sections 8.3 and 8.5 of the Final Commitments in Case COMP/39.964—AF-KL/DL/AZ, in conjunction with paragraphs 131–132, 166 and Article 1 of the Annex to the Commission decision, supra note 105.

151

Interinstitutional Agreement between the European Parliament, the Council of the EU and the European Commission of 13 April 2016 on Better Law-Making, OJ L 123/1, 12.05.2016, section III, para. 23.

152

Review Clauses on EU Legislation—A Rolling Check-List, Study by the European Parliamentary Research Service, 6th ed., PE 621.821—June 2018.

153

Civil Aeronautics Board Sunset Act of 1984, Pub. L. No. 98–443, 98 Stat. 1703.

154

H.R. 831—111th Congress, 1st session (2009–2010), at: <https://www.congress.gov/111/bills/hr831/BILLS-111hr831ih.pdf>.

155

See, for example, Diana Moss, Alliance and Antitrust Immunity: Why Domestic Airline Competition Matters, 31(1) THE AIR & SPACE LAWYER (2019); Fred Lazar, supra note 133; and Kinder, supra note 122.

156

14 CFR § 303.06—Review of antitrust immunity, at: <https://www.law.cornell.edu/cfr/text/14/303.06>.

157

See Order 2009-7-10, section VI.14, p. 30, supra note 115. Order 2008-5-32, p. 6., supra note 115. Order 2010-7-8, p. 24, supra note 117. Order 2019-11-14, p. 13, supra note 74.

158

Order 2009-7-10, Appendix A, p. 3, ibid.

159

Order 2008-5-32, p. 4, ibid, and Order 2009-7-10, section VI., p. 27, ibid.

160

Order 2009-7-10, section I, supra note 115.

161

Order 2008-5-32, p. 5, supra note 115, and Order 2009-7-10, section VI., p. 27, ibid.

162

Order 2010-7-8, section E.3., p23, supra note 115.

163

See, for example, Order 2019-11-14, p. 12, supra note 74. See also Joint application of American Airlines and Qantas Airways, Docket DOT-OST-2018-0030, Final Order 2019-07-07, 19.07.2019, p.5.

164

Order 2009-7-10, section I, supra note 115.

165

Supra note 121, at V(H)(4)(I), p. 30.

166

Ibid, Appendix A, section 5.

167

Joint Application of Delta and Aeromexico, Docket DOT-OST-2015-0070, Final Order 2020-12-18, 17.12.2020, p. 4.

168

Joint Application of American Airlines and Qantas Airways, Docket DOT-OST-2018-0030, Order to Show Cause 2019-05-23, 03.06.2019, section V. A., p. 16.

169

Supra note 89.

170

International Fair Competitive Practices Act of 1974, Pub. L. No. 98–443, 98 Stat. 1706 (signed into law on 03.01.1975), re-codified in 49 U.S.C.A. § 41310.

171

See reference to Ferreira doctrine in P. MENDES DE LEON, Cabotage in Air Transport Regulation, Martinus Nijhoff Publishers, The Netherlands, p. 101 (1992). For insightful analysis into the period of air transport regulation, see John E. Richards, Toward a Positive Theory of International Institutions: Regulating International Aviation Markets, 53 Int. Organ. 1 (1999).

172

Supra note 3.

173

See Articles 7 (fair competition), 16 (environment), 18 (consumer protection) and 20 (social aspects) of the 2021 EU-Qatar Air Transport Agreement, supra note 56.

174

See, for example, Article 7 of the EU-Qatar Air Transport Agreement, supra note 56.

175

See, for example, Article 7 (7–13) of the EU-Qatar Air Transport Agreement, supra note 56.

176

Arts. 1 and 2 of Regulation (EC) 868/2004 of the European Parliament and of the Council of 21 April 2004 concerning protection against subsidization and unfair pricing practices causing injury to Community air carriers in the supply of air services from countries not members of the European Community, O.J. 2004, L 162/1.

177

Sean McGonigle, Past its Use-By Date: Regulation 868 Concerning Subsidy and State aid in International Air Services, 38 Air & Space L. 1 (2013). See also Commission Staff Working Document, Impact Assessment Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on safeguarding competition in air transport, repealing Regulation (EC) No 868/2004, SWD(2017) 182 final, 8.6.2017. See also, Proposal for a Regulation of the European Parliament and of the Council on safeguarding competition in air transport, repealing Regulation (EC) No 868/2004, COM(2017) 289 final, 08.06.2019.

178

Lykotrafiti, supra note 1.

179

Art. 1(1), in conjunction with Art. 2(6), supra note 89.

180

Art. 2(8), in conjunction with Recital 10, ibid.

181

Recital 15, ibid.

182

Article 4(1), in conjunction with recital 13, ibid.

183

Article 4(1), in conjunction with recital 14, ibid.

184

Article 5(8), in conjunction with recital 16, ibid.

185

Art. 14(3) in conjunction with Recital 24, ibid.

186

Recital 27, ibid.

187

Article 6, in conjunction with recital 17, ibid.

188

Article 13(2) (b), in conjunction with Article 3, ibid.

189

Article 6(2), ibid.

190

Lykotrafiti, supra note 1.

191

See Public Law 93-623, January 3, 1975 [S. 3481], International Air Transportation Fair Competitive Practices Act of 1974. 49 USC 1159b, reading: “United States air carriers…have become subject to a variety of discriminatory and unfair competitive practices in their competition with foreign air carriers. The Department of State, the Department of the Treasury, the DOT, the Civil Aeronautics Board, and other departments. or agencies, therefore, each shall keep under review, to the extent of their respective functions, all forms of discrimination or unfair competitive practices to which United States air carriers are subject in providing foreign air transportation services and each shall take all appropriate actions within its jurisdiction to eliminate such forms of discrimination or unfair competitive practices found to exist.”

192

49 U.S.C. app. § 1159(b)(1) (1980) (recodified as 49 U.S.C.A. § 41310 (West 2008)).

193

Ibid.

194

Brian Havel, supra note 69, Ch. 4 III D.

195

Lykotrafiti, supra note 1.

196

Regarding IATFCPA complaints, see: <https://www7.transportation.gov/policy/aviation-policy/iatfcpa-complaints>.

197

See Delta Airlines, American Airlines and United Airlines, “Restoring Open Skies: The need to address subsidized competition from State-owned airlines in Qatar and the UAE,” 28 January 2015.

198

Lykotrafiti, supra note 1.

199

Media Note: Understandings with Qatar Seek Level Playing Field, Office of the Spokesperson, 30.01.2018, at: <https://www.state.gov/understandings-with-qatar-seek-level-playing-field/>. See also Statement from the Press Secretary Regarding the United States-United Arab Emirates Open Skies Understanding, 17.05.2018, at: <https://www.whitehouse.gov/briefings-statements/statement-press-secretary-regarding-united-states-united-arab-emirates-open-skies-understanding/>.

200

Commission Staff Working Document, supra note 177.

201

Public Law 96–192-Feb. 15, 1980, 94 Stat. 42.

202

Recital 3, supra note 89.

203

Supra note 192.

204

Recital 2, supra note 89.

205

For insightful analysis, see Brian F. Havel and Iva Savic, Against Hortatory Language in Treaties: Lessons for International Law from the Battle over Article 17bis of the US-EU Air Transport Agreement, 44 Annals Air & Space L 1 (2019).

206

Havel, supra note 69.

207

Complaint of Kalitta Air, LLC under 49 U.S.C. § 41310 of the International Air Transportation Fair Competitive Practices Act, as amended, Order (Instituting Proceedings) 2019-2-4, Docket DOT-OST-2019-0021, 06.02.2019.

208

Order (dismissing complaint and terminating proceeding), Docket DOT-OST-2019-0021, 01.05.2019.

209

Twenty-second Meeting of the U.S.-EU Joint Committee Record of Meeting, Air Transport Agreement, 16.11.2020, at: <https://www.state.gov/twenty-second-meeting-of-the-u-s-eu-joint-committee-record-of-meeting/>.

210

See Commission Staff Working Document, stating that: “Following a number of complaints from US carriers, the IATFCPA has been used quite frequently between 1986 and 2004. However, in all but one cases the processing of IATFCPA cases alone has acted as a deterrent to foreign governments and a catalyst for the international negotiations eventually leading to the amicable resolution of dispute through the removal of unfair practice in question,” at 2.1.7., p. 34, supra note 177.

211

Commission Staff Working Document, at 2.1.7., p. 34, supra note 177.

212

For an inventory of State aid measures to airlines to address the implications of Covid-19, see Jae Woon Lee, Government Bailouts of Airlines in the COVID-19 Crisis: Improving Transparency in International Air Transport, 24 JIEL 1 (2021). See also, OECD, State Support to the Air Transport Sector: Monitoring developments related to the Covid-19 crisis, 22 April 2021, at: <https://www.oecd.org/corporate/State-Support-to-the-Air-Transport-Sector-Monitoring-Developments-Related-to-the-COVID-19-Crisis.pdf>.

213

Transport Canada News Release of February 11, 2021, Government of Canada approves proposed purchase of Transat A.T. Inc. by Air Canada, at: <https://www.canada.ca/en/transport-canada/news/2021/02/government-of-canada-approves-proposed-purchase-of-transat-at-inc-by-air-canada.html>.

214

Air Canada News Release of April 2, 2021, Air Canada and Transat A.T. Inc. Agree to Terminate Arrangement Agreement, at: <https://aircanada.mediaroom.com/2021-04-02-Air-Canada-and-Transat-A-T-Inc-Agree-to-Terminate-Arrangement-Agreement>.

215

European Commission, STATEMENT/21/1562, Statement by Executive Vice-President Vestager on announcement by Air Canada and Transat to withdraw from proposed merger, 2 April 2021.

216

Supra note 213.

217

Ibid.

218

Supra note 55.

219

See, for example, DANIEL J. GIFFORD & ROBERT T. KUDRLE, THE ATLANTIC DIVIDE IN ANTITRUST—AN EXAMINATION OF U.S. AND EU COMPETITION POLICY (The University of Chicago Press, 2015).

220

See Hubert Horan, arguing that “[T]he Star/Continental cases brought to light an irreconcilable gap between the DOT and DOJ approaches to airline antitrust jurisprudence,” supra note 82.

221

Catherine A. Peterman, The Future of Airline Mergers after the US Airways and American Airlines Merger, 79 J. AIR LAW & COM. 781 (2014). See also, American Antitrust Institute, Announcement of 12 November 2013, “Antitrust Experts Question DOJ’s Remedies in Mega-Airline Merger Settlement,” at: https://www.antitrustinstitute.org/antitrust-experts-question-dojs-remedies-in-mega-airline-merger-settlement/.

222

See the DOT’s response to the DOJ’s criticism in the STAR alliance case:

“Were we to suddenly change our antitrust immunity and public interest approach, as DOJ suggests, the credibility of the U.S. Government with its international aviation partners would be significantly compromised and our ability not only to reach new Open-Skies agreements but also to maintain those agreements that we have already achieved would be undermined.

DOJ argues that “achieving balance in the market success of differing alliances is not a legitimate goal of sound competition policy.” That is not, however, the U.S. policy objective, as American notes. The policy objective is to support a level operating environment to compete in the international marketplace. In addition, many of our bilateral relationships remain subject to restrictive agreement provisions, and we continue to find that the ability of alliances and individual carriers to compete effectively in this global market enhances our ability to negotiate further Open Skies agreements, supra note 115 (Order: 2009-7-10, Docket OST-2008-0234), at IV. A., p. 11.

223

Daniel J. Gifford and Robert T. Kudrle, Antitrust Goals, Procedures, and Policies in the U.S. and the EU, 62(2) ANTITRUST BULL. 239 (2017).

Author notes

Dr Lykotrafiti is Senior Lecturer in Transport, Energy and the Law at the Centre for Commercial Law Studies, Queen Mary University of London. E-mail: [email protected]. I am immensely grateful to Professor Ioannis Kokkoris (Professor of Competition Law and Economics, Centre for Commercial Law Studies, Queen Mary University of London) and Freya Whiteman (Senior Regulatory Policy Adviser, UK Civil Aviation Authority) for generously sharing with me their insights into several issues discussed in this paper. All errors remain my own.