Such ambitious plans have not gone unnoticed

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Such ambitious plans have not gone unnoticed. Regulators, politicians, labour leaders and, not least, independent competitors, all worry that the big network carriers are about to seize back the skies one transcontinental route at a time. In time, they warn, it will be passengers who pay for the legacy airlines’ regained dominance. For an industry beset by cut-throat competition, volatile commodity prices and one of the worst downturns in demand in history, the savings made possible by international partnerships hold the promise of stable profits – a goal as elusive to many airlines as comfortable economy class seats. Few analysts doubt these partnerships will continue to flourish; many big airlines have persuaded US regulators to grant them antitrust immunity, freeing them to co-ordinate in ways that would have been otherwise impossible given the restrictions many countries impose on foreign investment in local airlines. Through these ventures, airlines such as Air France-KLM co-operate on schedules and fares, co-ordinate sales pitches to corporate accounts and consolidate marketing offices and terminal gates. The next step would be joint purchasing agreements, generating volume discounts on everything from plastic cups to jet fuel – and maybe even multi-million dollar aircraft. “It’s no secret that this industry has failed to earn a reasonable profit over time,” says Tom Horton, American Airlines’ chief financial officer. “One of the structural problems has been extreme fragmentation . . . Alliances are a step in the direction of rationalising the industry.” It is little wonder executives at many large carriers regard partnerships as a salvation. And why their unallied peers such as Virgin and Emirates argue they will come to dominate the skies, crushing competition. “If I were chairman of BA or American I would try to get away with it, try to dominate,” Mr Branson says. “But that is what you have governments for, and that’s what you have regulators for.” The upstarts have allies of their own, in Washington and Brussels. A bill now going through Congress could rescind US antitrust immunity deals. US Justice department officials have pushed their peers in the transport agency to limit the ventures’ scope. In Brussels the European Commission is investigating the effects of partnerships on competition. Critics argue that these ventures could undo much of the progress that has been made in the past 30 years towards making air travel more affordable. According to the Air Transport Association, a US lobby group, the price of flying each mile internationally since 1978, when the US industry was deregulated, has risen just 81 per cent – a far lower increase than the rise in cost of many consumer goods.
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There are signs the trend has begun to reverse, at least on routes shared by venture partners. From 1999 to 2004, air fares in transatlantic markets dominated by the immunised alliances increased significantly compared with other international routes, according to the Brattle Group, a research firm.
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