European Union scrutinizes legality of airline alliances

The European Union is taking a look at alliances between U.S. and European airlines to see if they're anti-competitive and harm passengers.

The European Commission said Monday it is investigating the alliance among Continental Airlines, United Airlines, Lufthansa and Air Canada, and the separate one of American Airlines, British Airways and Iberia Airlines.

The commission, which is the EU's executive arm, used the strong term "investigation," meaning carriers that violate EU competition laws could be fined up to 10% of their revenue and forced to cease their cooperation. Representatives of the airlines downplayed the EC's move as a common review.

Jonathan Todd, a commission spokesman at EU headquarters in Brussels, said EU rules don't allow airlines to cooperate in setting prices or divvying up the number of flights each member of a partnership offers — unless there are benefits for passengers.

The commission, he said, has been seeking proof of benefits to passengers from the alliances for a year. By opening a formal investigation, he said, commission investigators can issue subpoenas and require testimony.

"We were not convinced consumers are benefiting," he said.

Alliances let airlines in one part of the world sell tickets under their own name to destinations that they don't actually serve. Members of alliances with antitrust immunity can cooperate more, however. Carriers with immunity can effectively merge operations within a geographic area, such as the trans-Atlantic routes. They can jointly set fare prices and determine which carrier's planes fly which routes.

Tim Smith, a spokesman for American, which is seeking antitrust immunity to cooperate with British Airways, Iberia and Finnair across the Atlantic, said the EC's move was expected.

He called it a "formal procedural step" that prevents the alliances from being investigated separately by any of the 27 nations of the EU by placing them under the commission's authority to examine.

Continental spokesman Dave Messing said the investigation of Continental's and Air Canada's current plan to join the United-Lufthansa partnership was "fully anticipated and is parallel" to a review by U.S. authorities to grant antitrust immunity.

The U.S. Transportation Department has tentatively awarded antitrust immunity to a Continental-United-Lufthansa partnership.

Unlike the Transportation Department, which has jurisdiction over airline antitrust here, the EU doesn't issue grants of immunity. Rather, it looks into proposed partnerships and opposes them or lets them move ahead.

Contributing: Marilyn Adams