International Air Alliances: Greater Transparency Needed on DOT's Efforts to Monitor the Effects of Antitrust Immunity
Fast Facts
Each year, millions of passengers travel internationally on U.S. and foreign airlines. Some of these airlines have formed alliances to coordinate and integrate their prices and schedules. Alliances may be granted immunity from U.S. antitrust laws if the Department of Transportation determines that consumers will benefit from this coordination and there won’t be a harmful effect on airline competition.
Transportation monitors these alliances to ensure that consumers are actually benefitting from them. However, the department isn't required to report on the effects of these alliances to Congress or to the public. We recommended that it do so.
Photo of airplanes.
Highlights
What GAO Found
Potential effects on consumers are included in the analyses the Department of Transportation (DOT) conducts when reviewing international air carriers' requests for antitrust immunity. If granted, this immunity allows the airlines to engage in certain cooperative activities, such as coordinating prices and schedules, without risk of violating U.S. antitrust laws (see figure). DOT's analyses examine:
- The potential competitive effect of the proposed cooperative agreement in terms of relevant markets, on changes in the number of competitors and market shares, and on market entry.
- The potential for the close integration of carriers to create public benefits, such as lower consumer prices or expanded service offerings.
Such analyses involve DOT staff's reviewing an array of data, documents, and reports filed in a public docket by carriers and interested parties and, ultimately, making a decision based on their assessment of the application. DOT has premised its decisions to grant immunity on the expectation that consumer benefits flow from high levels of integration of critical business functions between carriers. To date, DOT has granted antitrust immunity 31 times, with 23 grants currently in effect, which cover agreements made among carriers in each of the three major international air alliances. DOT has rejected three applications due to concerns about potential anticompetitive harm or insufficient public benefits for consumers. Stakeholders GAO interviewed generally agreed that DOT's decisions were transparent, but some disagreed on the potential benefits of immunity for consumers.
DOT takes multiple steps to monitor alliances and understand the effects of immunity. Since 2009, DOT has required all transatlantic and transpacific partnerships to submit annual reports on the status of their immunized agreement. Additionally, DOT recently commissioned an empirical evaluation of immunities' effects and is currently reviewing the findings. However, DOT does not externally report information on the effects of granted immunities to Congress, industry stakeholders, and the public. As a result, these external entities are unable to determine what, if any, steps DOT is taking to ensure that grants of antitrust immunity remain in the public interest. Further, without additional transparency and information on DOT's findings on the effects of immunities, external entities do not know if immunized alliances have delivered the expected consumer benefits that DOT used as a basis to approve the carriers' request for antitrust immunity.
International Air Carriers May Cooperate to Varying Degrees
Why GAO Did This Study
Each year, millions of passengers travel internationally by plane. Many of these passengers are served by U.S. and foreign air carriers that have formed alliances to coordinate and integrate their networks. With antitrust immunity provided by DOT, airline alliances pursue a wide range of cooperative activities as outlined in joint venture agreements between the airlines. While this cooperation is meant to provide consumers with better services, it could also affect the extent of airline competition.
GAO was asked to review consumer issues related to immunized international air alliances. This report (1) describes how DOT's review of antitrust immunity applications considers the potential effects on consumers and (2) evaluates how DOT monitors approved grants of antitrust immunity. GAO analyzed DOT's antitrust immunity proceedings, interviewed officials from DOT, the Department of Justice, as well as a nongeneralizable selection of 13 stakeholders, including consumer organizations and domestic air carriers with and without antitrust immunity.
Recommendations
GAO recommends that DOT externally report to policymakers and the public on the effects of antitrust immunity, based on DOT's monitoring activities. DOT agreed to provide public information on its monitoring, but not to report on the effects of antitrust immunity. GAO continues to believe its recommendation, in full, is valid as discussed further in the report.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Aviation Analysis | The Director of DOT's Office of Aviation Analysis should provide periodic external reporting, at a time interval DOT determines appropriate, to the public and policymakers, on the effects of antitrust immunity—based on the range of monitoring activities undertaken by DOT—including whether grants of immunity have achieved anticipated benefits and the status of remedies—such as airport slot divestitures—imposed as part of DOT's approval. (Recommendation 1) | Each year, millions of passengers are served by U.S. and foreign air carriers that have formed alliances to coordinate and integrate their networks. With antitrust immunity provided by DOT, airline alliances pursue a wide range of cooperative activities as outlined in joint venture agreements between the airlines. While this cooperation is meant to provide consumers with better services, it could also affect the extent of airline competition. In 2019, GAO reported that there was generally little, if any, information from DOT available to external stakeholders and the public regarding DOT's monitoring efforts and its findings on the effects of granted antitrust immunities. DOT published... one summary document on its website that lists every active and inactive immunized cooperative agreement, but DOT did not report information on its own voluntary monitoring activities in public dockets or elsewhere. For example, DOT had commissioned an independent report on the economic effects of antitrust immunities, but had not decided whether the report would be made public. As part of an internal control system, management should externally communicate quality information. Attributes of this principle call on federal program managers to communicate quality information externally so that external parties can help the government achieve its objectives and address related risks. DOT officials cited several reasons for not reporting on their monitoring activities and related findings. DOT officials underscored that much of the information gathered in its voluntary monitoring efforts-annual reports, in particular-are proprietary and, therefore, not information DOT could publicly disclose. GAO noted that DOT must balance providing information to policymakers and the public with statutory requirements that protect proprietary information from disclosure. DOT rightly keeps information on the status of cooperation under immunized agreements confidential. However, the market outcomes of immunities are not proprietary and DOT could publicly report on them. Like DOT's current practice of periodically updating the summary document on immunities, DOT could issue such reports at a time interval it determines appropriate. This information could provide greater transparency and be useful in considering changes in DOT's authority to grant antitrust immunity, an authority the Congress and others have considered at various points. Therefore, GAO recommended that DOT provide external reporting to the public and policymakers on the effects of antitrust immunities based on DOT's monitoring activities. In late 2019, DOT updated its website to include up-to-date information on immunized air alliances, including web links to the federal register docket proceedings for these alliances. The updated website also includes a new section that describes DOT's ongoing alliance monitoring activities. This section provides the public with descriptions of the annual reporting DOT requires of immunized airlines and the steps DOT takes to monitor competition on an ongoing basis. Additionally, DOT posted the independent study on economic effects on the department's new research and reports section of its website. As a result of these DOT actions, more information on DOT's ongoing monitoring of immunized alliances and their effects on consumers is in the public domain, enhancing transparency on DOT's internal processes and providing policymakers, stakeholders, and the public with improved information on the competitive effects of immunities.
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