How anti-trust immunity affects the frequent flyer

The Department of Transportation has just granted Continental Airlines immunity from anti-trust laws; as a result, Continental will not only be able to work more closely with its future Star Alliance partners, it will also be able to form a joint venture with United, Air Canada, and Lufthansa for trans-Atlantic service. The full docket is located here.

While this is certainly great news for Star Alliance, few travelers really realize the implications the anti-trust laws (or immunity from them) have on their flying experience. And if you're a frequent flyer, the implications are huge.

As an example of how anti-trust immunity works for the benefit of frequent flyers, Star Alliance carriers United (UA) and Lufthansa (LH) have had anti-trust immunity for years. Not only are they able to tightly integrate their schedules, they are also allowed to codeshare on each other's flights, reduce costs, and share revenues on their trans-Atlantic operations. For customers, this means shorter connection times and a lot more routing flexibility: An American traveler could take one of the many flights UA and LH operate to Frankfurt or Munich, and quite easily connect to any of Lufthansa's destinations in Europe, Asia, or Africa. The same holds true for the European traveler, who gains seamless access to UA's flights within the United States, as well as UA's trans-Pacific flights to Asia and Australia. The alliance between United and Lufthansa is in fact so close that the frequent flyers reap really good benefits; if I were to take a trans-Atlantic flight on LH, as a United 1K, I would get the same 100% redeemable miles bonus that I would get if I took a similar flight on UA. I could even use my System Wide Upgrades on Lufthansa flights, albeit on a standby basis and for one flight segment only.

In contrast, look at American Airlines and British Airways, both of whom Oneworld carriers. These two airlines had sought anti-trust immunity years ago, but were denied on the basis of the landing rights both carriers had at London Heathrow (LHR). This has led to some silly rules within both carriers' frequent flyer programs: Codeshare flights are not allowed over the Atlantic between the two airlines; an AAdvantage member cannot accrue (or redeem) miles when traveling over the Atlantic on BA, and vice-versa. Unlike the case with UA and LH, the lack of anti-trust immunity hurts the frequent flyer; it severely limits one's travel options. It should come as no surprise, then, that these carriers are still seeking anti-trust immunity. With the Open Skies agreement between the US and the EU now in place, the LHR argument should now be moot, and there should be no reason now to deny these carriers anti-trust immunity.

Certainly, there are some caveats to anti-trust immunity, as it could hurt competition on certain international routes, which, as the Department of Justice complains, could lead to higher fares. Indeed, if you look at the official document regarding Continental's inclusion in the anti-trust immunity agreement, the Department of Transportation has already "carved out" exceptions; these include certain flights to and from the US and Canada, as well as all flights from the US to Beijing. So there is still some room for healthy competition; if we were to see a low-cost carrier fly some routes from the US to Toronto, fares will go down, not up.

Regardless, I find the potential effect this immunity agreement will have on the competitive landscape to be absolutely fascinating, and I look forward to Continental's inclusion into Star Alliance later this year. (Believe me, I'm already looking forward to the Micronesia and Latin America routes!) For Continental frequent flyers, I hope the transition from Skyteam to Star Alliance will be easy and seamless; we welcome you with open arms.