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The European Commission last week and the U.S. Department of Transportation on Tuesday made final their approvals for an American Airlines-British Airways-Iberia transatlantic joint venture, and antitrust-immunized agreements among those carriers and fellow oneworld partners Finnair and Royal Jordanian. For AA and BA, the end of the regulatory review marks more than a decade of efforts to align more closely, as well as compete more intensely against SkyTeam and Star Alliance, and provides authorization for "blanket code sharing."
"We've waited 14 years to bring the benefits of the transatlantic joint business to our customers and level the playing field with the other two global alliances," according to a statement from BA chief executive Willie Walsh. Iberia executive chairman Antonio Vazquez added that "consolidation is the best and only way to succeed in the airline industry, and the approvals we have received to create a joint business are a very important step towards this consolidation process." Separately, BA and Iberia last week received EC clearance to merge into a transnational aviation entity similar in size and scope to Air France-KLM Group and Lufthansa Group.
In approving the three-way JV, EC accepted legally binding, 10-year competitive "remedies" proposed by the carriers. They include surrendering take-off and landing slots at London Heathrow and/or London Gatwick airports for flights to Boston (two daily slot pairs), New York (three daily slot pairs), Dallas (one daily slot pair) and Miami (one daily slot pair); making available slots at New York JFK for services to London in the future if deemed necessary; and combining fares, offering connections and linking loyalty programs with other airlines.
"The commitments will ensure competition on the routes, resulting in an adequate choice of flights, quality of service and ticket price," according to an EC statement.
Similarly, DOT is requiring AA, BA and Iberia to relinquish four slot pairs at London Heathrow, including two in the Boston-Heathrow market and two "in any U.S.-Heathrow market." Given those and other conditions, DOT determined that "the joint venture, as well as the overall alliance, is, on balance, pro-competitive and that it is likely to generate substantial benefits to the traveling and shipping public."
Both EC and DOT indicated that competitors could make use of the slots as early as March 2011. EC said it discussed its examination with DOT, indicating that cooperation was "aimed in particular at avoiding additive remedies, if possible, as a result of the separate investigations in the two jurisdictions."
In approving the deals, DOT explained that Virgin Atlantic--which has repeatedly voiced opposition to oneworld immunity--did not convince it to reverse its tentative approval announced in February. "Virgin Atlantic provides no sound basis to justify ignoring the broader competitive environment," DOT wrote. "Since the provisional application of the U.S.-EU open-skies agreement, at least three major airlines have begun serving the United States from Heathrow, and the overall U.S.-Heathrow market has enjoyed an expansion and diversification of services. The new entrants have enhanced competition and will continue to exert competitive discipline in the market when the joint venture is implemented.
"Approval of the oneworld alliance will not prevent Virgin Atlantic from adding new transatlantic services because, if there is sufficient demand, it has slots available to do so if it chooses," DOT added. "The essence of Virgin Atlantic's argument is that the alliance will acquire undue market power and that it will use that increased market power to restrict capacity and raise fares to the detriment of consumers. Our competitive analysis, grounded in historical traffic data, found otherwise. With the conditions we are placing on our approval, the alliance will not likely enable the applicants to raise fares above competitive levels."
DOT also largely dismissed concerns raised by the American Society of Travel Agents and the Interactive Travel Services Association. The two groups argued that an immunized oneworld would harm travel agencies and distributors, but DOT said the groups "ignore the department's fundamental tentative finding that the alleged harm (the reduction in travel agent commissions) is attributable to structural changes in the travel industry and not grants of antitrust immunity. The benefits of the joint venture are inextricably linked to the joint venture partners' plans to cooperate in the areas of sales and distribution."
According to DOT, AA, BA and Iberia as part of their joint venture "will cooperate commercially on flights between the United States, Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities. They will expand their codeshare arrangements on flights within and beyond the U.S. and European Union, significantly increasing the number of destinations that the airlines can offer customers. Customers also will receive numerous benefits, including expanded opportunities to earn and redeem frequent flyer miles and elite-tier benefits and continued reciprocal airport lounge access."
The carriers intend to launchthe transatlantic JV this autumn.
BA-Iberia Merger To Face 'Sufficient Competition'
As BA and Iberia accelerate planning for a tighter AA partnership, they also will work to finalize their proposed merger--in the works since 2008--now that EC has given the green light.
"The Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area or any substantial part of it," according to an EC statement. Noting its particular examination of the London-Madrid and London-Barcelona routes, EC wrote that "the merged entity will continue to face sufficient competition from other carriers active on these routes, and therefore passengers will have adequate alternatives to fly on these routes after the merger." EC indicated that it came to the same conclusion when scrutinizing other short- and long-haul routes.
Other industry observers told Procurement.travelthat the BA-Iberia tie-upwouldn't likely have a noticeable impact on many corporate travel programs, though some could see benefits from the combination, including improved account management. Carlson Wagonlit Travel U.K. director of industry affairs Nigel Turner, for example, expects BA-Iberia to construct a corporate sales team and process similar to that of Air France-KLM, in which both operating companies are represented but negotiations and contract management are handled across a single, combined network. When asked generally about consolidation in the European market, Turner pointed to the consumer benefits of combined networks and said, "Overall, there still is enough competition out there."
BA and Iberia intend to seek approval from their respective shareholders before year-end.
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