Code-Share Agreements: A Developing Trend in U.S. Bilateral Aviation Negotiations

Indiana Law Journal

Volumn 72, Issue 2, 1997, Pages 527-543

  Barron II, Robert F ^a,b,c  

^a INDIANA UNIVERSITY   (United States)

^b UNIVERSITY OF MISSOURI ST LOUIS   (United States)

^c INDIANA UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 1542498652     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (67)

1. The United States Department of Transportation ("DOT") is the administrative agency which oversees "formal aviation-related functions includ[ing] the following: negotiation of international air transportation rights [and] selection of American air carriers to serve international markets in which capacity is limited by treaty." Thomas D. Grant, Foreign Takeovers of United States Airlines: Free Trade Process, Problems, and Progress, 31 HARV. J. ONLEGIS. 63, 69 (1993); see also 49 U.S.C. §§ 40101(e), 40105 (1994) (outlining policies and procedures the Secretary of Transportation must consider in conducting international aviation negotiations and agreements).
2. Paul S. Dempsey, Airlines in Turbulence: Strategies for Survival, 23 TRANSP. L.J. 15, 18 (1995).
3. Id. at 18 (citing Julius Maldutis, Industry Investment Requirements - Looking Beyond 2000, Address at the 7th International Air Transportation Association High-Level Aviation Symposium (Sept. 6-7, 1993)).
4. J. A. Donoghue, The Players: Impact of Mergers in US Airline Industry, AIR TRANSP. WORLD, Dec. 1, 1995, at 7.
5. Even though DOT relaxed the limit on total equity that a foreign carrier can hold in allowing KLM Royal Dutch Airlines to effectively purchase 49% of Northwest Airlines, this controlling statute still restricts foreign ownership to a maximum of 25% of the U.S. airline's voting equity stock. 49 U.S.C. § 40102(a)(15)(C) (1994) (defining a corporation as a citizen if 75% of its voting interest is controlled by individual U.S. citizens); Seth M. Warner, Comment, Liberalize Open Skies: Foreign Investment and Cabotage Restrictions Keep Noncitizens in Second Class, 43 AM. U. L. REV. 277, 309 nn.231-32 (1993) (discussing earlier version of the statute).
6. In general, "[c]odesharing is the practice by which [two or more] airlines connect flight legs into a longer route under one computer designator code and charge a single fare for the combined flights." Warner, supra note 5, at 281 n.29.
7. Order Requesting Comments, 57 Fed. Reg. 19,323 (1992). This initiative was introduced in 1992 by former Secretary of Transportation, Andrew H. Card, Jr., announcing that the United States was willing to negotiate open skies agreements with European countries which would grant U.S. air carriers free access to their markets on a reciprocal basis.
8. Convention Relating to the Regulation of Aerial Navigation, Oct. 13, 1919, art. 1, 11 L.N.T.S. 173, 190 [hereinafter Paris Convention].
9. Warner, supra note 5, at 279 (quoting Paris Convention, supra note 8, 11 L.N.T.S. at 190).
10. Convention on International Civil Aviation, Dec. 7, 1944, art. 1, 61 Stat. 1180, 1180, 15 U.N.T.S. 295, 296 [hereinafter Chicago Convention].
11. Paul S. Dempsey, Turbulence in the "Open Skies": The Deregulation of International Air Transport, 15 TRANSP. L.J. 305, 312 n.13 (1987).
12. Bruce Stockfish, Opening Closed Skies: The Prospects for Further Liberalization of Trade in International Air Transport Services, 57 J. AIR L. & COM. 599, 604 (1992 ) (citing ANDREAS F. LOWENFELD, AVIATION LAW: CASES AND MATERIALS 2-8 (1981)).
13. Bruce Stockfish, Opening Closed Skies: The Prospects for Further Liberalization of Trade in International Air Transport Services, 57 J. AIR L. & COM. 599, 604 (1992 ) (citing ANDREAS F. LOWENFELD, AVIATION LAW: CASES AND MATERIALS 2-8 (1981)).
14. Dempsey, supra note 11, at 312 n.9.
15. Id. at 313.
16. Article 44 of the Chicago Convention states that: The aims and objectives of the Organization are to develop the principles and techniques of air navigation and to foster the planning and development of international air transport so as to . . . (d) Meet the needs of the peoples of the world for safe, regular, efficient and economical transport; (e) Prevent economic waste by unreasonable competition; (f) Insure that the rights of contracting States are fully respected and that every contracting State has a fair opportunity to operate international airlines. Chicago Convention, supra note 10, 61 Stat. at 1192-93, 15 U.N.T.S. at 326.
17. Dempsey, supra note 11, at 313.
18. Id. at 314.
19. Chicago Convention, supra note 10, 61 Stat. at 1182, 15 U.N.T.S. at 300.
20. This author participated in developing and implementing a commercial agreement between Qantas Airways, the airline of Australia, and Aerolineas Argentinas, the designated international flag carrier of Argentina. The commercial agreement was provided for in the bilateral agreement between the two countries.
21. Elapsed time includes the total number of hours it takes to fly the originating flight from Australia to the west coast of the United States, the layover time on the west coast, the time for the final flight to Argentina, and the time required for intermediate stops, if any.
22. F. Allen Bliss, Note, Rethinking Restrictions on Cabotage: Moving to Free Trade in Passenger Aviation, 17 SUFFOLK TRANSNAT'L L.J. 382, 388 n.25 (1994).
23. "State" as used by the Chicago Convention refers to sovereign nations.
24. Article seven of the Chicago Convention, the cabotage provision, states that: Each contracting State shall have the right to refuse permission to the aircraft of other contracting States to take on its territory passengers, mail and cargo carried for remuneration or hire and destined for another point in its territory. Each contracting State undertakes not to enter into any arrangements which specifically grant any such privilege on an exclusive basis to any other State or an airline of any other State, and not to obtain such exclusive privilege from any other State. Chicago Convention, supra note 10, 61 Stat. at 1182, 15 U.N.T.S. at 300.
25. Grant, supra note 1, at 75.
26. Note, The Legal and Regulatory Implications of Airline Computer Reservation Systems, 103 HARV. L. REV. 1930, 1931 (1990).
27. Marj P. Learning, Note, Enlightened Regulation of Computerized Reservations Systems Requires a Conscious Balance Between Consumer Protection and Profitable Airline Marketing, 21 TRANSP. L.J. 469, 472 (1993).
28. Larry G. Locke, Note, Flying the Unfriendly Skies: The Legal Fallout over the Use of Computerized Reservation Systems as a Competitive Weapon in the Airline Industry, 2 HARV. J.L. & TECH. 219, 220 (1989); see also Notice for Advance Comments, 48 Fed. Reg. 41,171, 41,173 (1983) (discussing the expenditure of money by airlines for development of this technology).
29. Larry G. Locke, Note, Flying the Unfriendly Skies: The Legal Fallout over the Use of Computerized Reservation Systems as a Competitive Weapon in the Airline Industry, 2 HARV. J.L. & TECH. 219, 220 (1989); see also Notice for Advance Comments, 48 Fed. Reg. 41,171, 41,173 (1983) (discussing the expenditure of money by airlines for development of this technology).
30. In re Air Passenger Computer Reservations Sys. Antitrust Litig., 694 F. Supp. 1443, 1450 (C.D. Cal. 1988), aff'd sub nom. Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991), cert. denied, 503 U.S. 977 (1992).
31. Id. This practice continued unabated until 1984 when the Civil Aeronautics Board ("CAB") established new rules requiring CRS vendors to charge subscribing carriers similar fees for similar services, and to provide unbiased displays. However the new rules did not regulate booking fees. See 14 C.F.R. §§ 255, .9(b)(1), .10(a) (1996).
32. Learning, supra note 26, at 473-74.
33. Id. at 472-74.
34. Many industry analysts have theorized that there is a "halo effect" by which travel agents are more apt to book the airline whose system they are using. See, e.g., Note, supra, note 25, at 1932 n.14. Travel agents are not likely to forget which system they are using as they generally receive training unique to that system. Each system also has a unique look - APOLLO, for example, is sky blue and easily recognizable.
35. Joseph F. Brodley & Ching-to Albert Ma, Contract Penalties, Monopolizing Strategies, and Antitrust Policy, 45 STAN. L. REV. 1161, 1189 (1993).
36. 867 F.2d 737, 739 (2d Cir. 1989).
37. Brodley & Ma, supra note 33, at 1189-90.
38. Jerome Ellig, Computer Reservation Systems, Creative Destruction, and Consumer Welfare: Some Unsettled Issues, 19 TRANSP. L.J. 287, 292 (1991).
39. 15 U.S.C. §§ 1-40 (1994).
40. Locke, supra note 27, at 227 (citing In re Air Passenger Computer Reservations Sys. Antitrust Litig., 694 F. Supp. 1443, 1451 (CD. Cal. 1988), aff'd sub nom. Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991), cert. denied, 503 U.S. 977 (1992)).
41. Id.
42. Air Passenger, 694 F. Supp. at 1455-56.
43. Commuter carriers usually operated turboprop planes of small capacity (in the range of 15 to 30 seats) with a high number of frequent flights between cities. These planes were especially economical to operate on short haul flights of approximately one hour. The pilots tended to be lower paid, with fewer flight hours than pilots at "major airlines," and the flights were permitted to operate without flight attendants. See generally Dempsey, supra, note 2, at 38.
44. Carolyn Hadrovic, Airline Globalization: A Canadian Perspective, 19 TRANSP. L.J. 193, 196 (1990).
45. See Joan M. Feldman, U.S. Inconsistencies Cloud International Code-Sharing, AIR TRANSPORT WORLD, Apr. 1988, at 20, 21.
46. Hadrovic, supra note 42, at 197 (citing DOT, OUTLINE OF CODE-SHARING DEVELOPMENTS (1988)).
47. 14 C.F.R. § 399.88 (1996). The policy sets minimum disclosure requirements which require air carriers to: (1) Identify, with an asterisk or other means, each flight in which the airline code is different from the code of the carrier actually providing the service, in written or electronic schedule information provided by the air carrier to the public, the Official Airline Guide and . . . computer reservations system vendors; (2) Provide information in any direct oral communication with a consumer concerning a code-sharing flight sufficient to alert the consumer that the flight will occur on an airline different from the carrier whose code is used and identify the carrier(s) actually providing the service; and (3) Provide frequent, periodic notice in advertising media that can reasonably be expected to convey to potential passengers and travel agents the existence of a code-sharing relationship and the identities of the carriers actually providing the service. Id.
48. Theodore P. Harris, The Disaster of Deregulation, 20 TRANSP. L.J. 87, 93 (1991) (citing DOT, DECLARATION OF PURPOSE (1966)) (emphasis added).
49. Theodore P. Harris, The Disaster of Deregulation, 20 TRANSP. L.J. 87, 93 (1991) (citing DOT, DECLARATION OF PURPOSE (1966)) (emphasis added).
50. Id.
51. IATA Director General Predicts Record Profits for 1995, WORLD AIRLINE NEWS, Nov. 13, 1995, available in DIALOG, IAC-NEWS database.
52. Grant, supra note 1, at 80 n.48.
53. Passengers may or may not be required to check-in with the international carrier depending upon the level of efficiency achieved between the two code-sharing airline partners.
54. Dempsey, supra note 2, at 36 (citing PAUL S. DEMPSEY ET. AL., 1 Aviation Law and Regulation §5.05 (1993)).
55. Bill Poling, U.S.-U.K. Deal Expands Code Shares, Adds Third Chicago-London Airline, TRAVEL WEEKLY, June 8, 1995, at 1.
56. American Airlines and Qantas to Expand Their Cooperative Services, WORLD AIRLINE NEWS, Nov. 6, 1995, available in DIALOG, IAC-NEWS database.
57. 14 C.F.R. § 255.4(b) (1996).
58. Dempsey, supra note 2, at 63.
59. Id. at 64.
60. Joan M. Feldman, Alliances: Are We Making Money Yet?, AIR TRANSP. WORLD, Oct. 1995, at 25, 26.
61. Douglas W. Nelms, Delta Presents Its Case: After $1 Billion in Losses, the U.S. Carrier Is Changing Its European Marketing Strategy with a Major Advertising Campaign, AIR TRANSP. WORLD, Dec. 1, 1994, at 59, 63.
62. Bridget O'Brian, Delta Air to Drop Four of Its Routes, Remove 13 Fleets, WALL ST. J., June 15, 1994, at A5.
63. Feldman, supra note 57, at 25, 32.
64. Warner, supra note 5, at 316-17.
65. See 50 U.S.C. § 2170 (1994) (providing authority to review certain mergers, acquisitions, and takeovers).
66. Bill Poling, Foreign Aid for U.S. Airline Industry?, TRAVEL WEEKLY, Feb. 28, 1991, at 31, 31.
67. Id.