United-Lufthansa Pact: Transatlantic Flying Is Set to Change

Deutsche Lufthansa AG, United Airlines, Continental, and Air Canada agreed to give up airport spaces in Frankfurt and New York in a concession to European antitrust investigations, which were sparked under fear that the revenue-sharing, pricing, and capacity pacts between the four airlines would drive up the price of transatlantic flights.

United Airlines and Continental merged in 2010 under United Continental Holdings (NYSE:UAL), which is now the biggest airline in the world.

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Members of the European Union’s antitrust group conducted rigorous tests to be sure the deal wouldn’t raise ticket prices for first and business-class passengers on transatlantic flights. The effects the pacts would have on short-haul and connecting flights were also examined. The agreement reached will remain legally binding for 10 years.

As part of the settlement, the airlines agreed to make ticketing and flight connection agreements with competitors. Airlines have been seeking partnerships in recent years to cut costs, but must make concessions in order to maintain competition. A similar deal between British Airways and Iberia of Spain (now IAG-SA) with American Airlines, owned by AMR Corp., won approval after also making a concession to give up operating slots in order to maintain competition.

Joaquin Almunia, the EU’s antitrust commissioner, said in a statement, “Thanks to the commitments offered by the three airlines, passengers on the Frankfurt-New York route will benefit from stronger competition. This decision is a further milestone in our effort to create a level playing field on transatlantic aviation markets.”

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In October the airlines were warned that their joint venture agreement could infringe antitrust rules because it would end competition between Lufthansa and United on the New York-Frankfurt route. The agreement reached calls for rival airlines to be able to make up to seven weekly flights between New York and Frankfurt.

The EU antitrust commission will have its work cut out for it if airlines continue to make similar cost-cutting pacts.

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