Only hours after British Airways, American and Iberia launched their trans-Atlantic joint business, the US Department of Transportation tentatively approved antitrust immunity for American-JAL and United-Continental-ANA, creating a level playing field across the Pacific as well.
American CEO Gerald Arpey used the occasion to announce the recall of 800 furloughed flight attendants and pilots as a result of the growth anticipated by the joint business.
The three chief executives of British Airways, Iberia and American, spoke in London to emphasise they can now cooperate commercially on flights between the EU, Switzerland and Norway and the US, Canada and Mexico. Known as International Airlines Group, the joint business is also expanding. They announced four new routes starting next spring, saying that the joint business they are developing as part of the oneworld alliance will foster more new routes since the power of the three meant otherwise unprofitable routes could now be served. Iberia CEO Antonio Vazquez announced Madrid-Los Angeles while Arpey said the company would add New York-Budapest and Chicago-Helsinki.
“A key part of the revenue sharing agreement is our ability to sell seats on each other’s flights,” said Walsh. “This wider cooperation and support will enable us to operate routes that would not be viable if we could only sell to our individual airline’s customer base. British Airways will start flights from Heathrow Terminal 5 to San Diego in June next year. Connoisseurs of the BA route network may know that this is the third time that we have launched this particular route. I think that serves to highlight the benefits of the joint business – the route did not deliver a profitable return for BA in isolation but we are extremely confident that, by working together with our colleagues, it will.”
Vasquez agreed. “Now we are able to offer our customers new routes that probably we could never operate without this joint business,” he said. “In the case of Iberia, our presence in the North Atlantic will increase significantly and this is just a starting point. We hope to open new routes in the future thanks to our joint business.”
Heathrow limits benefit Madrid
Walsh drove home the limits for growth at Heathrow, about which he has been very vocal since authorities nixed a new runway for the European hub. Meanwhile, all suggested that Madrid may play a more powerful role as a connecting point as a result.
“Terminal 4 at Madrid Barajas airport, our modern and spacious hub, gives all of us the possibility to grow as much as we want, as it has still a lot of capacity to be used,” said Vasquez. “The growth potential of our joint business and the extra capacity Madrid offers will enable Barajas airport to become one of the main gateways for flights between North America and Europe in the very near future.”
Walsh, however, noted that the opening of Terminal 5 at Heathrow has been a plus. “The problem is there is no excess capacity at the airport and we are now looking for other solutions,” he said. “The airline industry will grow and that growth will not be at Heathrow or not as much as it will be elsewhere such as Madrid. It is regrettable the decision was taken and there is not to be a reversal of that decision. But we are continuing to look at growth and there is also an opportunity to grow the combined networks. We want to make it convenient and for passengers to have access to a great network through our partners in Madrid and in the US. It’s about providing choice and additional competition.”
Arpey also noted that American is working with the Port Authority of New York and New Jersey on an expansion of its terminal at JFK and expects to reach a final agreement next year. The three carriers are at a significant disadvantage as they are not co-located at Heathrow and New York but their new transfer centres may be an answer to that.
Service differences to remain
The three made a distinction when asked about harmonising in-flight services, saying they would keep their brands and different ways of serving passengers.
“We remain three separate companies, with our own brands, products and services, but we knew that we needed to work hard in order to make our passengers feel like they are travelling with one company,” said Vasquez pointing to the key difference in this joint business.
The airlines are creating transfer support centres for oneworld passengers to resolve issues quickly, according to Vasquez. “We have recently opened Miami, New York and London Heathrow centres and the Madrid transfer centre will open in a few days,” he said.
Vasquez elaborated, saying such transfer centres had never been done before. “These new centres take care of passengers with close connections or those who have missed their flights when transferring between the three airlines,” he explained. “Employees from the three companies work in the transfer centres. Their first role is to identify flights that have passengers on board with very little connection time or passengers who have already missed their flight. Then, these passengers are met at the aircraft by dedicated, frontline, customer-service staff. They make sure passengers catch their flight in case of close connections, or rebook them on the next available flight and issue new boarding passes to those who have missed their connection. This will significantly enhance the customer and baggage transfer proposition at key hubs.”
Vasquez added that differences such as the the level of baggage fees will be harmonised. “We will also provide greater clarity, visibility and choice than has ever been provided before,” he said. “We are not seeking exactly the same service on each aircraft but rather the clarity on what passengers can expect to get on board oneworld. We will be looking after you as though we were one entity.”
Arpey continued. “We each take pride in unique attributes of our service and brands,” he said. “But in terms of coming together from customer standpoint a way to think about it is schedules. As we work to align our schedule, service between JFK and Heathrow will be hourly. With the service centres we collectively work together to take care of customers and all three networks will get passengers where they want to go. There are also tremendous benefits in the frequent flyer programmes. That’s a huge benefit being able to earn and redeem miles on each other.”
Walsh also said there has been no deal between the three for mutual aid such as offering up employees during a strike such as those already experienced or threatened at British Airways.
The Department of Transportation said the trans-Pacific alliances would not only enhance competition but also provide lower fares, more routes, increased service, better schedules and reduced travel and connection times.
The deals are subject to Japan and the US signing an open skies agreement initialled 11-Dec-2009 by the countries. The agreement allows airlines to serve routes based on demand and eliminates limitations on the number of US and Japanese carriers in the markets.
The tentative approval allows 21 calendar days for comment before the department issues a final order.
In responding to the announcement, American said it is adding daily flights between Kennedy and Haneda on 20-Jan-2011 while Japan Airlines begins Haneda-San Francisco on 31-Oct-2010. The two airlines will likely duplicate the joint business American is creating across the Atlantic including improved schedule and routing choices and reciprocal earning and redemption in their frequent flyer programmes. The company also said that antitrust immunity offers employees and shareholders greater corporate stability as the joint venture has greater ability to sustain existing service and launch new routes in addition to improving their overall competitive position.
"An immunised joint business will benefit the US and Japanese economies, promote increased cultural exchange and provide more travel choices and greater access to discounted fares for millions of consumers," said American Senior Vice President-Government Affairs Will Ris. "Once DoT and the Ministry of Land, Infrastructure, Transport and Tourism of Japan issue final approvals for the joint venture, then officials from the US and Japanese governments will sign the open skies agreement.
"We appreciate that DoT recognises the value in our application. Upon receiving immunity, Japan Airlines and American Airlines will cooperate more closely with the common goal of serving our customers better," said Tsutomu Ando, executive officer of international affairs at Japan Airlines. "These new opportunities afforded by developments in the aviation landscape in Japan will allow us to optimise flight schedules, pricing and enhance operational efficiency to ultimately benefit the customers."
Walsh said the three companies had been waiting 14 years to launch their joint business, noting “oneworld can finally compete across the Atlantic on an equal footing with its rivals".
American is expecting the joint business to yield USD500 million in revenues and savings annually. Meanwhile, Walsh, who would not outline the synergies of the joint business, said that the impending BA-Iberia merger would yield EUR400 million in synergies on an annual basis with one third from revenues and two thirds from costs savings.
He outlined some of the consumer benefits the three have put together since their agreement was approved by US and European authorities in July. These include:
- Codeshares on more than 2600 additional flights, increasing the number of destinations available;
- Easier travel on the combined networks which will serve more than 400 destinations in 105 countries with about 5200 daily departures;
- Booking flights on any of the three carriers’ websites affording more choice and flexibility on routing and fares;
- Ability to mix and match airlines for both the outbound and inbound flights, taking different airlines but avoiding the higher one-way fares charged historically;
- Earning and redeeming miles in the oneworld frequent flyer programme no matter what airline is flown, closing the competitive disadvantage oneworld had with Star and SkyTeam across the Atlantic;
- Decreasing the duplication and complexity for corporate customers who will now have integrated account management across the three carriers.
Increased frequencies and realignment of schedules
“When we were competing against each other, many of our trans-Atlantic flights left at the same time,” said Walsh. “Now we’re working together, we can improve schedules to provide more choice from the start of the summer 2011 season next March. The benefits will be seen at airports such as Heathrow, JFK, Chicago and Miami. Our customers are offered much better choice of timing throughout the day.”
“We’ve waited a long time for today,” added Arpey. “It was in 1996 that the partnership between American Airlines and British Airways was forged, and not long after that, in 1999, Iberia joined oneworld. As everyone knows, the airline industry, and the world for that matter, have changed greatly since then. And there have certainly been changes none of us saw coming. But there were a few important things we did know back in 1996 – things that explain why, despite all we’ve been through, and all the resistance and skeptics we faced, American Airlines, British Airways and Iberia have stuck it out together. We knew globalization was here to stay and would grow in importance – and that customers would demand more and better access to the world’s most important markets. We knew that as individual airlines, to meet that demand, we needed partners – not just any partners, but the best partners. Even without the regulatory advantages enjoyed by rival alliances, we and our oneworld partners have persevered through the toughest period in the history of our industry. But all of those challenges have simply cemented our belief in the importance of having the right partners.”
He pointed to the addition of Russia’s S7 airline to the oneworld team shortly and Kingfisher next year, followed by Air Berlin in 2012. “Already, the oneworld network, including current and expected members, encompasses 9,400 flights a day to nearly 900 destinations in roughly 150 countries,” he said. “But we are certainly not done strengthening our alliance and we intend to build on and accelerate our momentum. As we continue our progress, I reiterate that, in our view, the key is not just having a long list of partners. The key is having the right partners, in the right places, and a network that delivers what customers truly value. Today is an exciting beginning, but we have much hard work ahead. Our challenge is to deliver the kind of choice and convenience our customers want, and that, to this point, no alliance has truly achieved.”
When asked what would happen to fares, Walsh noted there are 40 airlines between Europe and the US which was the most competitive market in the world. “This means there is a new era of competition across the Atlantic,” he said. “Passengers have never had more choice and competition has never been greater. There should be no fears on the part of the customer as to whether there will still be cheap fares. With the joint business we offer more.”
Expanded employee opportunities
All three said that far from hurting airline jobs, the joint business would mean enhanced opportunities for employees. Indeed, that is what prompted the American recall. The company is recalling 545 flight attendants and 250 pilots, citing the joint business with British Airways and Iberia as well as the continued strengthening of its cornerstone hubs and preparation for the Japan Airlines joint business.
"The company is pleased to be recalling approximately 800 total pilots and flight attendants to help capitalize on our business goals as well as to meet our staffing needs in the coming months,” said Arpey. “This is exactly the kind of growth we're hoping to achieve with our network strategy, and my hope is that trends like this will continue."
The first group of 25 pilots will be recalled in mid-November, and the company will continue to recall at a rate of approximately 30 per month. For flight attendants, recall notices will be sent in phases. The first notices will be issued to 225 flight attendants this month; subsequent notifications will follow later in the year.