Antitrust at 35,000 Feet: The Extraterritorial Application of United States and European Community Competition Law in the Air Transport Sector

By Elliott, G Porter | The George Washington Journal of International Law and Economics, January 1, 1997 | Go to article overview

Antitrust at 35,000 Feet: The Extraterritorial Application of United States and European Community Competition Law in the Air Transport Sector


Elliott, G Porter, The George Washington Journal of International Law and Economics


G. PORTER ELLIOTT*

It really is a ludicrous situation. When I open a Virgin Megastore in New York I am welcomed with open arms, just as Tower Records is in London. But try to operate an air service between New York and Boston, using US aircraft and US crew, and governments scream that I am mad.n

-Richard Branson, chairman of Virgin Atlantic Airways

I. INTRODUCTION

Air transport may well be the quintessential transnational industry. Every year more than one billion passengers world-wide travel by plane,2 generating billions of dollars in revenue.3 Increasingly, these planes cross international borders, taking tourists and businesspersons to their destinations abroad.4 Under customary international law,5 as well as by treaty,6 nations historically have reserved, as part of their sovereignty, exclusive rights to the skies above them. In an increasingly interdependent world, however, countries are steadily opening their skies to foreign airlines in exchange for reciprocal, if not equilateral, air rights.7

At the same time, countries are cognizant of the adverse effect that opening their skies to foreign airlines may have on national carriers. This occurs especially when third-country airlines potentially enjoy competitive advantages based on favorable domestic laws governing air transport.8 Accordingly, the mission of every country with an airline capable and desirous of handling transnational services is to facilitate its airlines' access to foreign markets,9 while simultaneously protecting its own market from an influx of foreign carriers.10

Meanwhile, with the growing global trend towards international air transport and deregulation,ll airlines are more eager to form alliances, particularly with foreign counterparts, to increase the efficiency of their international operations.12 This is particularly true with respect to U.S. and European carriers, who view cooperation as a means to link networks through "hub and spoke" operations,13 allowing them to achieve important economies of scale.14 Such alliances inevitably raise antitrust issues, especially considering that the airline industry is dominated by a relatively small number of market participants.15 In addition to being subjected to scrutiny by the competition authorities of both the United Statesls and the European state at issue, such transatlantic airline alliances ultimately may need to satisfy European Community (E.C. or Community) competition rules.17

A conflict often arises between the desire of governments to open foreign markets to their airlines and the realization that proposed airline alliances approved to meet this objective may infringe antitrust laws.ls In the case of Europe and the United States, the result is an often bitter struggle over air transport rights,lg the enforcement of antitrust law, and the protection of national airlines. This battle over the transatlantic skies is being waged by the governments of the European countries-acting independentlyand by the United States.20 The results of the battle are reflected in the bilateral agreements negotiated between the United States and some of these governments, in which the United States has, thus far, enjoyed the upper hand.21 The European Commission (Commission), desperately seeking a role to play, hovers somewhere in the clouds for the time being.22 Although both the United States and many European governments have openly denounced the Commission's recent assertions of competence in external air transport matters,23 it is probably only a matter of time before the Commission begins negotiating on behalf of the Member States in this area.24

Adding to the existing turbulence, the Community has recently awarded cabotage rights to the airlines of its Member States,25 a final measure in completing the liberalization of the European aviation sector.26 As of April 1, 1997, Member State carriers are permitted to provide commercial routes between two points situated exclusively within another Member State. …

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