American Airlines, British Airways and Iberia acknowledged in an August filing for antitrust immunity little headway in collectively working with corporate clients, though they are seeking to remedy their deficient transatlantic position with the implementation of a joint business venture agreement.
Those three Oneworld carriers in August officially put those long-anticipated plans in motion, following similar moves by carriers of the competing SkyTeam and Star alliances.
In its request filing with the U.S. Department of Transportation, the carriers told DOT that the Oneworld alliance "has been unable to offer integrated global corporate contracts because the lack of antitrust immunity for its members prevents them from agreeing on discounts or performance targets."
The request notes large multinational corporate customers in recent years "have moved away from dealing with individual airlines and toward alliance contracts," leaving Oneworld unable to bid on some business that immunized competitors have gained.
"In fact, some corporations are now requiring alliance bids to be from an immunized grouping—taking Oneworld entirely out of the picture," the request notes. The filing went so far as to call its transatlantic alliance offering "little more than the stapling of individual carrier contracts together in an alliance wrapper."
An approval would enable each carrier "to address one of the biggest complaints it receives from corporate customers—meeting the marketshare targets upon which discounts are based," the carriers said. "Oneworld's inability to coordinate often leads to impossible requirements—such as committing to provide more than 100 percent marketshare to the alliance. This is because the carriers currently set marketshare goals based on their individual—not collective—self-interest."
Several transatlantic Star Alliance carriers already operate with antitrust immunity, and just this year DOT approved a similar structure for SkyTeam alliance members.
Carriers from those alliances are furthering their ties and deepening their relationships—and American and British Airways are playing catch-up. As it migrates from SkyTeam to Star, Continental this summer announced plans to build a four-way joint venture with United Airlines, Air Canada and Lufthansa, in part mimicking the immunized venture that its SkyTeam partners Delta-Northwest and Air France-KLM are building across the Atlantic
(BTNonline, June 30).The three Oneworld carriers laid out what the deal would mean for corporate clients as a "a long-overdue third option to Star and SkyTeam." British Airways senior vice president of commercial in North America Woody Harford told BTN, "It's a changing business model and either you get on board or you get run over. We're trying to strengthen our alliance model, which is what everyone else is doing."
American and British Airways hope their third attempt at immunity will be charmed. After a failed antitrust immunity attempt in 1999
(BTNonline, Aug. 2, 1999), BA and American in January 2002 retracted their second application for antitrust immunity after U.S. federal regulators demanded they surrender 224 weekly slots at London Heathrow Airport
(BTNonline, Jan. 25).Kurt Stache, American Airlines vice president and general sales manager, said he doesn't expect DOT to put similar conditions on this attempt.
The changing North Atlantic air alliance landscape, the dire need to offset high fuel costs and the recently enacted Open Skies agreement that opened Heathrow up to further competition—a prerequisite for approval of an earlier ATI attempt between AA and BA—should ease the regulatory environment for approval, Stache said.
Even before the carriers announced they would further cooperation, transatlantic rival Virgin Atlantic cried foul. It said an immunized alliance "would create a monster monopoly," noting AA and BA would hold almost 60 percent of U.S.-London Heathrow frequencies. "Heathrow is full and no other carrier can replicate BA/AA's network," Virgin said. "BA/AA won't face enough competition on its huge network to stop it raising prices to consumers."
BA's Harford said, "There's emotion attached to these types of decisions, but no logic attached to that debate. Some of our competitors are throwing a lot of tired, 12-year-old arguments when the world has moved on. If they choose not to be part of alliance groupings, that's certainly their decision. We're just trying to play by the rules."
Stache argued other immunized carriers hold even greater transatlantic marketshare in such home markets as Frankfurt (see chart).
Oneworld partners Finnair and Royal Jordanian also are party to the antitrust immunity request, though the proposed immunized joint venture will focus on the three anchor carriers. American, British Airways and Iberia plan to operate as separate entities but coordinate on schedules, pricing and revenue sharing between North America and Europe, Stache said.
AA, BA and Iberia expect to expand codesharing on flights beyond the European Union and United States, while further coordinating frequent flyer and airport lounge programs. They also plan to engage in trilateral cost-savings initiatives.
Meanwhile, British Airways and Iberia in late July disclosed plans for an "all-share merger," though the carriers need "several months" and regulatory approval before a final transaction.