March 1, 2014
On 18 March 2014, the Competition Commission of Singapore (CCS) released a report on the findings from an aviation market study. This study was driven by the growing number of airline alliances formed worldwide due to a variety of reasons which were unique to the air travel industry. The CCS has also seen an increase in the establishment of such alliances. Since the inception of the Competition Act, the CCS has reviewed eight airline alliances.
The report was based on a retrospective analysis of the scale and scope of economic benefits arising from two airline alliances operating in Singapore and the Asia Pacific region. The two airline alliances featured in the study were Japan Airlines/American Airlines and All Nippon Airways/Continental/United Airlines. Both alliances were cleared by the CCS as they were determined to have net economic benefits.
The findings of the study demonstrated that while there were net economic benefits in both alliances, the magnitudes of benefits were smaller than those reported in western literature analysing airline alliances operating in Europe or the United States. This was especially in relation to the level of increases in passenger numbers and decreases in passenger fares. Nevertheless, the CCS cleared both alliances and relied on its conclusion that the net economic benefit test is all-encompassing and includes other measures of benefits such as improved flight schedules and increased capacity.
This undoubtedly signals good news to airlines. However, while it may be easy to jump to the conclusion that the CCS is more likely to view alliances favourably, we should not forget the other important findings of the study to which the CCS also acknowledged that it would place a lower reliance on arguments of net economic benefits relying heavily on: (i) air fare decreases or (ii) which rely solely on western literature.