“The Commission believes at this stage that the commitments address its competition concerns…If the market test confirms that the proposed commitments remedy the competition concerns, the Commission may adopt a decision...making the commitments legally binding on the parties,”: European Commission, 10-Mar-2010. AP quoted EU spokeswoman Amelia Torres as saying "the offer could see rivals start two extra daily flights each from London to New York and from London to Boston and one more daily service from London to Dallas and from London to Miami.” In a bid to ease the passage of EU Commission approval of their north Atlantic joint venture, British Airways and its would-be partners have offered to provide additional access to valuable Heathrow slots for selected city pairs. Will this be sufficient to appease the opposition? The EU appears to be leaning towards approval.
A solution finally looms for the oneworld partners. After years of debate, a little tinkering at the margins may be enough to allow the Commission to let the application through. But, in doing so, the Commission neglects to acknowledge the new reality and effect of global airline alliances on the market.
There is no dispute as to the importance of London in any airline’s network. On the North Atlantic, traffic to the UK accounts for roughly 40% of the total capacity; and London, by virtue of British Airways, is dominated by oneworld. However, by way of comparison, BA has nowhere near the control at Heathrow that Delta exhibits in Atlanta - where SkyTeam controls upwards of 90% of the international lift.
And while almost every carrier wants access to London, the days are long gone when simply flying there, at any cost, is the stated goal. In an alliance world, airlines are choosing their turf carefully, hoping that they will be able to maximise their regional clout. For that reason, United Airlines finally abandoned New York-London as an orphan route, lacking the feed or concentration of Mileage Plus members that were necessary for viability. Here, the Continental move from SkyTeam to Star was a heady boost for the Star Alliance, as it introduced a strong New York based partner with US domestic clout. As has been noted previously, Newark is now the primary “home” of Star in the New York area.
How valuable will the proposed slot leases be?
The airlines have proposed to make available:
Additionally they have offered the possibility of:
Two daily pairs from Heathrow or Gatwick to New York.
According to the proposal, the slots may be leased from the airlines' current slot portfolio and do not have to be currently used on the specified routes. The Commission has agreed that the airlines should be compensated financially by those airlines wishing to lease slots.
Just how valuable will these offerings be to the Boston, New York, Miami and Dallas markets, where London is only one end of the equation?
The value of Miami and Dallas slots
Miami Airport is the most international of US hubs with oneworld, notably American Airlines, controlling 75% of that airport's capacity. And to travel anywhere in the US from Miami, other than another carrier’s hub, chances are excellent that the American logo will be on the tail. A similar situation prevails at DFW, where competitors exist primarily for the sake of connecting their hubs to the Dallas market.
Given the dead ends that MIA and DFW represent for other carriers, they may not be massively motivated to enter the fray and try to challenge an alliance that virtually owns both routes?
New York is another with limited appeal. At present, there are 26 daily nonstops between New York (EWR and JFK) and the various London airports. To make a rough assumption of an average 250 seats per flight, that puts 6,500 seats per day on the city pair route. British Airways leads with 11 and AA, equal to Virgin, is next with 5. Though Delta (2) and Continental (3) might each welcome another slot or two, it is difficult to imagine that the current competitive situation would be changed in any meaningful way by such an exchange. Neither US Airways or United would find any benefit in operating a lone flight in the market. The swapportunity is there, but it does not make a highly attractive option.
Or Boston's charm?
Finally, Boston, one of the few major East Coast airports that is not a primary hub. The present schedule includes three BA, two AA and one Virgin Atlantic daily service to LHR. So, if there is any point that might benefit from a bit of change, Boston may be the best candidate. But, as the table below shows, there is little to be gained; the incumbent carriers primarily go to places that already have nonstop London access (in bold), making a connection at Boston far less desirable.
Primary nonstop services from Boston
So, despite the undoubted generosity of the offer, it is hard to see exactly which airline might rush to the front of the line to grab an open slot, and even more difficult to imagine the constituency that it might benefit. Yet these are among the major routes where complaints were raised about market domination of the grouping, should antitrust immunity be granted, so the offer is surely pertinent.
This egg has been scrambled. A little garnishment needed, but no climbing back into the shell
The Commission is charged with avoiding reduction of competition and generating customer benefits.
But the realities of what is now an alliance-driven aviation world both preceded and, arguably, now supersedes regulation. The horses have left the gate and a new pattern of competition is in place. Global alliances have evolved in the uncharitable environment between a rock and a hard place - where globalisation of airline ownership is essential, but where restrictive ownership rules prohibit it.
And, unless the new world alliance structure is to be totally dismantled and rebuilt with different parameters, competition bodies' micro-managements of the airline system become largely irrelevant. The main course is set.
Today, changing the dynamics across the North Atlantic would probably require a second British carrier that includes a global feed, along with the disestablishment of almost every US hub - each of which has been specifically constructed to eliminate substantial competition in the local market. If the Commission wants to fix LHR-MIA’s status, then it needs to address the Delta presence in Atlanta and United’s (and Star’s) power in Washington.
In other words, it would need to redirect the current global aviation structure. Neither the US Department of Transportation nor the EU Commission has the influence nor the competence necessary to do that. So perhaps it is time to face reality - like it or not.
Neither body can come out openly and say that it is powerless in this regard. But at least the Commission does seem to be recognising, like the DoT, that its main role is to monitor performance and correct egregious and predatory behavior, while making the existing system as functional and as customer friendly as it can be. That monitoring role should continue.
But anything more than that is simply a costly and futile quest. Let the leasing begin - and allow the new market to flow.