An effort by Delta and low-cost carrier WestJet to obtain permission to operate an antitrust-immune joint venture on flights between the U.S. and Canada could spur United Airlines and Air Canada into action on their dormant joint-venture partnership.
Delta and WestJet reached a preliminary agreement to form a joint venture in December, but they have not yet filed applications with the U.S. Department of Transportation or with Canada’s Competition Bureau. Joint venture approval would allow the carriers to jointly schedule, market and operate flights. In so doing, Delta and WestJet would deepen a partnership that already includes more than 250 codeshare routes as well as frequent-flyer program ties.
This summer, Delta and WestJet will offer a combined 26% of the U.S.-Canada transborder aviation market capacity, according to the air travel intelligence company OAG.
That total will fall well short of Air Canada, which will offer 46% of the U.S.-Canada market capacity. Air Canada’s codeshare partner, United, meanwhile, will offer 12% of U.S.-Canada capacity. American, the next largest operator in the market, will fly 8% of seat miles.
Mark Drusch, a former Delta senior vice president who is now a vice president in the aviation wing of the consultancy ICF, said that a Delta-WestJet joint venture approval could spur Air Canada and United to begin taking advantage of antitrust immunity they’ve had since 1997.
«It definitely makes them look at this differently,» Drusch said.
Indeed, last June, even before the Delta-WestJet announcement, Air Canada vice president of alliances Yves Dufresne told Bloomberg that the carrier was interested in once again pursuing a joint venture with United. The carriers attempted to establish a joint venture early this decade but didn’t go through with it after the Canada Competition Bureau forbade joint operations on 14 high-demand routes that the bureau contended would see diminished competition as a result of the partnership.
What had spurred Dufresne’s interest in June was a bill that is still pending in the Canadian Parliament, which would ease the regulatory burden for approval of joint ventures.
The Bloomberg report was alarming enough to JetBlue that in October, the carrier wrote a letter to DOT secretary Elaine Chao asking that, should Air Canada and United move to launch a joint venture, they be required to do so under a new publicly docketed proceeding instead of being able to move forward quietly under their 1997 antitrust immunity docket.
JetBlue, which doesn’t operate Canada flights, said that in an already consolidated air market such as U.S.-Canada, a joint venture between Air Canada and a legacy U.S. carrier «has extraordinary potential to create consumer harm in the transborder market and make it even less likely that JetBlue and other U.S. [low-cost carriers] would enter the market in the future.»
JetBlue’s pessimism aside, opinions vary with regard to the impact on U.S.-Canada transborder air competition that joint ventures between either Air Canada and United or Delta and WestJet would have.
Diana Moss, president of the American Antitrust Institute, a nonprofit that says its mission is to promote competition that protects consumers, business and society, agreed that regulators should review the eventual Delta-WestJet application closely, especially in light of how concentrated the U.S. market has become in the wake of six prominent mergers in the last 13 years.
«They’re not co-mingling complementary networks that I can particularly see,» Moss said. «There could be very limited competition on those routes. If there is, that would also raise eyebrows. [Regulators] would need to look at the hubs being used. What’s the competition at those hubs? Are [Delta and WestJet] dominant at those hubs?»
But Drusch argued that whether United and Air Canada begin making use of their antitrust immunity or merely continue to codeshare, a Delta-WestJet joint venture would be good for consumers.
«It will open up new markets, nonstop routes that haven’t existed before, as well as new connecting routes,» he said. «And it does give Air Canada more competition, because Air Canada dominates the transborder, so the consumer wins.»
In an analysis in late January, Jason Nguyen of the CAPA Centre for Aviation, an Australia-based commercial airline industry consultant and research firm, referred to Air Canada’s continued expansion into the U.S. as «unrelenting.» Air Canada has announced six new transborder routes for 2018; it will be the lone operator on all of them.
In applying for joint ventures, airlines typically argue that antitrust immunity will create synergies that will enable them to expand service in the marketplace in question.
Drusch said that the No. 1 efficiency is that joint ventures effectively give carriers a much larger fleet, which enables them to more easily schedule the correct aircraft for each route. Other efficiencies come in the form of scheduling coordination and through joint marketing and sales efforts, among other things…
