The Joint Venture Between American Airlines And Japan Airlines

In April 2011, American Airlines and Japan Airlines announced the launch of a trans-Pacific alliance. This partnership allows airlines to coordinate flight schedules, set fare prices, and collaborate on marketing campaigns. Additionally, airline customers can book flights on either airline through either company’s website. In order to forge this joint venture, American Airlines and Japan Airlines applied for antitrust immunity from the U.S. Department of Transportation. They received approval in November 2010 after the U.S. and Japanese governments signed an “open skies” treaty that opened up more flights between the two countries. Even before this joint venture, American and JAL had a codeshare agreement and shared frequent-flier plan which generated about $1.5 billion in new revenue and savings each year.

This airline alliance is an example of an associative system of exchange. In this system, economic actors assume that over the long run, partnerships and mutual support will produce the largest profits. As in communal systems, actors in Associative systems take a particularistic orientation toward other actors -- in other words, they act preferentially toward some actors but not others. However, actors in the Communal and Associative systems have very different motivations for entering into these partnerships.  Communal systems arise because of shared identity or group membership (e.g. ethnic associations, alumni affiliation, etc.). Conversely, Associative systems arise only when the partnership will improve everyone’s bottom line. 

The cost-benefit analysis at the heart of associative systems of exchange was demonstrated by the negotiations leading up to the American-JAL venture. Both Delta and American Airlines were vying for the partnership, and they each offered JAL over $1 billion to support them during financial difficulties. Ultimately, JAL settled on American Airlines because they had an existing partnership and they wanted to “minimize the upheaval and risk” that they would have faced by switching to Delta. Thus, the partnership between American Airlines and JAL was motivated by financial gain -- or, at the very least, prevention of financial losses -- rather than a sense of shared identity or values (beyond the value of maximizing profits).

Associative arrangements are very common in the airline industry. For example, American Airlines also has a trans-Atlantic venture with British Airlines and codeshare agreements with over 25 different airlines. Additionally, airline alliances have emerged as airline companies have found it profitable to share codes, share operational facilities, and negotiate discounts for high-volume purchases. The top three airline alliances (Star Alliance, SkyWorld, and Oneworld) fly over 60% of the world’s passengers. The industry justifies these partnerships by pointing to their reduced costs that ostensibly benefit consumers, but the lack of substantial airline competition can also lead to artificially high airfares and reduced coverage on shared routes.

Agriculture is another industry where associative arrangements are common, and they justify these market irregularities by arguing that they secure the national food supply. In other words, regulators accept collusive arrangements in the name of the public good. Can the airline industry make a similar claim?  Is air travel such a public good that the airline industry should be exempt from antitrust laws? For now, the U.S. government believes that it is, arguing that the extensive costs of running air fleets would severely limit the number of airlines unless they allowed extensive cooperation within the industry. However, it is hard to tell whether U.S. consumers would benefit from healthier airline competition. 

Image by Eric Salard.

Citations:

1. Maxton, Terry. 2010. “American, JAL Granted Antitrust Immunity for Joint Venture.” Dallas News. November 10. Retrieved January 29, 2013 (http://www.dallasnews.com/business/headlines/20101110-American-JAL-granted-antitrust-immunity-6150.ece). 

2. Martin, Timothy W. 2011. “AMR, JAL Forge a Partnership.” The Wall Street Journal. April 1. Retrieved January 29, 2013 (http://online.wsj.com/article/SB10001424052748704530204576235060492562894.html). 

3. Biggart, Nicole and Rick Delbridge. (2004). “Systems of Exchange.” Academy of Management Review 29(1): pp. 28-49.

4. Wassener, Bettina. 2010. “Japan Airlines Decides to Stick with American Airlines.” The New York Times. February 1. Retrieved January 29, 2013 (http://www.nytimes.com/2010/02/10/business/global/10air.html).