DOT Tentative OK Of AA-BA-Iberia JV Requires Relinquishing Four Slot Pairs

The U.S. Department of Transportation this past weekend tentatively approved the antitrust-immune joint venture proposed by American Airlines, British Airways and Iberia Airlines, through which those carriers plan to jointly plan services, set pricing and share revenues on their combined transatlantic network. In its tentative approval, DOT requires American and British Airways to relinquish four daily slot pairs at Heathrow Airport.

More than three months past its Oct. 31 statutory deadline, DOT's tentative approval kicks off a 45-day comment period, which invites competitors and the public to help shape the final ruling, expected by April.

The carriers said the approval allows them to better compete across the Atlantic against two other already-approved antitrust-immune joint ventures—one between SkyTeam members Delta and Air France-KLM and the other among Star Alliance carriers Air Canada, Continental Airlines, Lufthansa and United Airlines.

"American and its Oneworld partners are looking forward to competing for business over the Atlantic on a level playing field. Meanwhile, over the Pacific, we will continue to focus on ensuring that competition among alliances remains as robust as it is today," said American Airlines senior vice president of government affairs Will Ris. American filed for permission late last week to implement a similar joint venture with Oneworld partner Japan Airlines across the Pacific.

Citigroup's U.K.-based aviation analyst Andrew Light in a research note said DOT's requirement that the carriers relinquish four daily slot pairs was expected. "The condition that they give up four daily slot pairs to competitors on U.S. routes is in line with our expectation and consistent with its previous ruling in 2002 to give up 16 daily slot pairs," Light said. "The four slot pairs is derived from the fact that other U.S. airline have picked up 12 daily slots pairs from their alliance partners and purchases since Open Skies came into effect in March 2008."

It's not clear if British Airways and American can sell those slots, but Light noted, "Prime-time slots pairs can fetch £10m each. This will probably be decided by the European Commission, but we expect they can be sold or leased, given that BA has had to purchase many of its own slots, and slot trading is commonplace at Heathrow."

Still, Light said there could be further conditions placed on final approval. For example, "The EC could impose further route-specific conditions, especially where AA/BA could dominate—e.g. London-Dallas Ft. Worth. We would expect price controls and carve outs rather than additional slots to be given up. The EC decision is expected some time in March. Also, the U.S. DOT will only make its final ruling in mid-April, after competitors are given 45 days to object to its initial approval."

Among those likely to object, Virgin Atlantic was quick to reaffirm its position as a vociferous challenger to the immunized alliance. Calling the approval a "kick in the teeth for consumers," Virgin Atlantic president Richard Branson said, "Four slot pairs is a complete joke and those responsible for this decision should hang their heads in shame."

The Business Travel Coalition applauded DOT's decision, claiming that approval will give corporate travel buyers another competitive option on the Atlantic. "Upon final approval, consumers and corporate travel departments will finally have three fully competitive alliance networks battling it out for their business," BTC said in a statement. "With the Star and SkyTeam alliances having been operating with antitrust immunity for their ventures for some time, business travelers no doubt have been paying higher fares than necessary with Oneworld's inability to provide effective competitive discipline to the other two immunized alliances."

BTC encouraged DOT and the European Commission, which is undergoing its own review, "to proceed without delay in bringing these benefits to the airline customer."

American, BA and Iberia in August 2008 filed their latest request with DOT in the wake of the Open Skies agreement between the U.S. and European Union. The Oneworld partners had not had good luck with regulators in the past, and in January 2002 American and British Airways retracted their second application for antitrust immunity after regulators demanded they surrender 224 weekly slots at London Heathrow Airport. That followed a similar failure in 1999 to obtain acceptable terms for immunity.