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DOT grants oneworld antitrust immunity

21-Jul-2010

In the same week as the European Commission approved antitrust immunity for the American-British Airways-Iberia joint venture, the US Department of Transportation followed suit yesterday finalising its 13-Feb-2010 decision granting antitrust immunity to American Airlines and four international partners, allowing them to form an integrated global alliance under oneworld.

See related report: EU clears oneworld alliance and British Airways-Iberia merger

However, the DOT imposed several conditions designed to protect consumers and preserve competition. While the Department found that the alliance, on balance, was pro-competitive, it noted that it could harm competition on select routes between the United States and London’s Heathrow Airport, a major hub for oneworld, where the availability of landing and takeoff slots is limited. To remedy this potential problem, the Department required the applicants to make four pairs of slots at Heathrow available to competitors for new US-London service, with two pairs to be used for Boston-London service and the other two for service from any other US cities. This more or less mirrors the conditions imposed by the EC.

AMR Chair and CEO Gerard Arpey was pleased. "This is an important day for the customers, employees and shareholders of American Airlines and our joint business partners in the oneworld alliance," he said.

See CAPA's page on Global Alliances

American needs the good news

American and its oneworld alliance partners British Airways, Iberia Airlines, Finnair and Royal Jordanian Airlines will now be able to coordinate international services more closely. American indicated that the synergies would yield it USD500 million in benefits, increasingly necessary given the impatience of Wall Street that it provide better results. AMR is set to report this week and analysts project it will report continuing losses in the second quarter even as its peers all report impressive profits.

Under the joint business agreement, the three airlines will cooperate commercially on flights between the United States, Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities. They will expand their codeshare arrangements on flights within and beyond the US and European Union, significantly increasing the number of destinations that the airlines can offer customers.

British Airways commends DOT and the European Commission

"This is a great day for all three airlines and the oneworld alliance. We've waited 14 years to bring the benefits of the trans-Atlantic joint business to our customers and level the playing field with the other two global alliances," said British Airways Chief Executive Willie Walsh. "As we have argued all along, the EU-US market is highly competitive and Heathrow's liberalisation in 2008 opened it up even further. We are delighted that the US and EU authorities have recognised this. We're pleased that the DOT and EU have worked together to ensure that there is consistency in the number of slots that the three airlines have to give up to our competitors to use on services from Heathrow to the US. We made the pragmatic decision to give up these slot pairs so that we can start operating the joint business as soon as possible."

And Iberia sees it as a boost for consolidation

"We are delighted we have received approval for our joint business, as it will be very positive for our employees, our shareholders and, most important of all, for our customers," said Iberia's Executive Chairman Antonio Vazquez. "A new kind of collaboration among our three airlines will lead to better service levels for our customers. This means that our customers will have more destinations to choose from around the world, better scheduled travel times, better connections, and more competitive fares. I am convinced that consolidation is the best and only way to succeed in the airline industry, and the approvals we have received to create a joint business are a very important step towards this consolidation process."

DOT conditions - reporting requirement

The DOT found that granting antitrust immunity to the oneworld alliance would provide travellers and shippers with a variety of benefits, including lower fares in some markets, new nonstop routes, improved services and better schedules. The Department also said that the alliance would enhance competition around the world by enabling the oneworld alliance to compete more vigorously with Star Alliance and SkyTeam, which operate similarly immunised alliances.

The Department also imposed requirements on the alliance to ensure capacity growth, so the carriers will have to submit traffic data and to implement the proposed alliance within 18 months. The carriers also must resubmit the alliance agreements for review within five years.

EU conditions more strenuous

The EU decision was more demanding. The legally binding concessions on the oneworld ATI, expected to be launched this Autumn, include making landing and takeoff slots available at Heathrow as part of an EU effort to expand competitors in the market to New York, Boston, Dallas and Miami. The three carriers made a 10-year commitment to sell available landing and take-off slots at London Heathrow or London Gatwick airports on routes to Boston, New York, Dallas and Miami, affording an additional 49 return flights a week between London and the four US points. They could be fined can be fined up to 10% of annual revenue if they violate their pledges.

Seven takeoff and landing slots are to be made available in London each day, including three for service between London and New York, where three slots will also be made available, if required, two in the London-Boston market and one each in the London-Miami and London-Dallas markets. Those markets are flown by 2.5 million passengers annually.

In addition to providing slots, competitors' passengers will also gain access to the legacy carriers' frequent flyer programmes. Competitors can also combine flights in a oneworld-proposed fare combinability measure which not only gives competitors access to connecting passengers, but offers special prorate agreements on the routes. Finally, the airlines will submit alliance data to the Commission at regular intervals, allowing it to re-assess the markets over time.

And now oneworld can breathe a sigh of relief and move on.


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