After a busy weekend, the oneworld airline alliance may be gaining ground on its competitors. On 12 February, partners American Airlines and Japan Airlines filed with U.S. regulators an application for transpacific antitrust immunity. The next day, those regulators after 18 months of analysistentatively approved an immunity request filed by AA, British Airways, Finnair, Iberia and Royal Jordanian airlines. If these allies receive final approval to closely coordinate sales, networks and operations, they would present new options for multinational corporate buyers, including joint contracts, unified pricing and reciprocal benefits for frequent travelers.
The AA-JAL request follows a similar application recently filed by Star Alliance partners Continental Airlines, United Airlines and All Nippon Airways. The SkyTeam alliance does not have a Japanese member, but founding member Delta Air Lines enjoys antitrust immunity with Korean Airlines, and Delta's Northwest Airlines subsidiary is a leading transpacific carrier.
In the Atlantic theater, AA and BA--along with three oneworld partners--can establish an immunized alliance if the U.S. Department of Transportation finalizes its tentative approval (it is accepting public comments through 30 March), if the carriers accept DOT's conditions and if the European Commission does not move to block the tie-up. Should all that occur, AA and BA finally would get a green light after 13 years and three formal requests to closely coordinate sales and operations.
"Provided the applicants abide by certain conditions, we have tentatively concluded that the potential benefits outweigh the potential harm" in large air travel markets between the United States and the United Kingdom," according to DOT. "Above all, if approved, the proposed alliance would enhance competition around the globe by creating a viable third immunized alliance that is comparable and more competitive with the product and service offerings of Star Alliance and SkyTeam, which have already received grants of antitrust immunity and are proceeding with their own alliance plans and integrated joint ventures."
If finalized, DOT approval would allow the five oneworld partners to coordinate corporate sales, "engage in blanket code sharing"; establish fully reciprocal frequent-flyer programs (something AA and BA in particular have sought for years); and coordinate "the presentation and sale of the services" in global distribution systems and internal reservations systems. It also would enable AA, BA and Iberia to develop a joint venture.
"An immunized American Airlines/British Airways will strengthen the competitiveness of London Heathrow vis-a-vis, Paris Charles de Gaulle, Germany's Frankfurt and Amsterdam's Schiphol airports, resulting in greater opportunities to play one alliance off the others as these competitors seek to attract business travelers to transit their respective European gateway airports," according to Business Travel Coalition chairman Kevin Mitchell. "Interalliance competition worldwide will be strengthened for the benefit of corporate travel departments everywhere."
Conditions
Even so, DOT noted that oneworld would "control almost half of Heathrow’s available slots, making new entry even more difficult," and therefore proposed "precautions to ensure adequate competition in the U.S.-Heathrow market." Those precautions most notably include the transfer of "four [daily] slot pairs" at Heathrow to unaffiliated airlines for new transatlantic services. [In 2002, AA and BA withdrew their second ATI request after regulators demanded the carriers surrender 16 daily slot pairs.] Two slot pairs would be allocated for Boston-London Heathrow (a market facing the "most acute" loss of competition, according to DOT) and two would "be used at any U.S. gateway for services in the U.S.-Heathrow market."
DOT's tentative approval did not include any restrictions on sales and marketing related to travel agencies and other distributors, as advocated by the American Society of Travel Agents and the Interactive Travel Services Association. DOT also did not accept the U.S. Department of Justice's recommendationfor carve-outs and did not specifically require remedies for five transatlantic markets cited by DOJ as being in danger of competition loss (Chicago-London, Dallas-London, Miami-London, New York-London and Miami-Madrid). Boston-London was the sixth specific market cited by DOJ.
DOT also proposed that AA, BA and Iberia "change certain terms" of the three-way joint venture agreement. Regulators did not publicly divulge their recommendations for changing the JV agreement, but did write that "the goal is to emphasize capacity growth over multiple hubs and enable the partners to act in the interest of the alliance as a whole." DOT said AA, BA and Iberia must implement the JV within 18 months, otherwise "the antitrust immunity granted to the proposed alliance will automatically expire."
In a press release, AA said "the provisional approval by DOT is an important step," but the carrier did not say it would accept the conditions. Instead, AA wrote that with its partners it "will review DOT's tentative order and will respond according to the time frame established for comments."
Meanwhile, the European Commission this month confirmed it was reviewing commitments by AA, BA and Iberia meant to allay competitive concerns related to their proposed JV. EC in September sent the partners a statement of objections as part of its antitrust investigation. EC also continues "parallel investigations" into cooperation among Star Alliance members and among SkyTeam alliance members.
AA, JAL Seek To Overcome Corp. Sales 'Disparity'
For transpacific services, the immunity application filed by oneworld's American and Japan airlines follows bankrupt JAL's decision to maintain its relationship with AA and oneworld rather than tying up with Delta and the SkyTeam alliance. AA and JAL seek approval for a revenue-sharing alliance that would eliminate "disparity between [oneworld's] corporate contracts and those offered by Star and SkyTeam." The carriers said the venture would expand to include other oneworld partners "as the alliance's integration deepens and matures."
AA and JAL told DOT that global corporate customers are "comprised entirely of time-sensitive business travelers" and "can represent nearly a quarter of a network airline's revenue." The corporate travel managers working for those organizations that oversee "multimillion-dollar budgets," the airlines continued, "are extremely sophisticated and understand the importance of alliances and the depth of their integration." They "provide constant feedback that Star and SkyTeam are able to use their antitrust immunity to offer superior, fully integrated discount programs. Despite vigorous efforts between oneworld's commercial and legal teams to find a solution, the lack of antitrust immunity has resulted in little or no progress being made."
To jointly sell to corporations and other multinational organizations, AA and JAL plan to coordinate pricing and unify sales forces, "with each carrier focusing its sales efforts in a single region."
AA-JAL coordination also would encompass more codeshare flights, cooperative scheduling (including more nonstop transpacific services) and product development, linked IT systems and a joint approach to distribution services, including displays in global distribution systems. For members of the carriers' loyalty program, the deal would mean complete reciprocity, including access to airport lounges.
AA and JAL also told DOT that their immunized alliance would "create competitive parity. Oneworld would account for 38 percent of U.S.-Japan bookings, followed by SkyTeam, 29.9 percent, and Star, 28 percent. That level of competitive choice is unmatched in any other country-pair."
The airlines asserted that "prompt approval" of their application is "imperative to ensure the implementation of the U.S.-Japan Open Skies agreement," which the two countries agreed upon in December. Otherwise, according to the airlines, there would be "no new access [for U.S. carriers] to Tokyo's two gateway airports--Narita and Haneda."