Members of the oneworld alliance last week asked the U.S. Department of Transportation for permission to establish immunized partnerships as a means to promote "vigorous interalliance competition ... on an equal regulatory footing" with SkyTeam and Star Alliance. If approved, oneworld would be equipped to improve joint bids for multinational corporate travel contracts and establish itself as the third of the integrated airline groupings positioned to dominate global commercial aviation well into the next decade.
The oneworld request comprises a joint business agreement for transatlantic services between American Airlines, British Airways and Iberia Airlines, and a wider application for antitrust immunity including those three airlines, Finnair and Royal Jordanian.
In addition to corporate sales, the allies seek to significantly expand codeshare flights and coordinate more closely in such areas as pricing, products, schedules, marketing, airport operations, global distribution systems and travel agency compensation programs. If the application is approved, AA and BA for the first time also would include transatlantic flights in expanded frequent flyer reciprocity.
The proposed three-way joint venture drew immediate criticism. Virgin Atlantic founder Richard Branson sounded off even before the oneworld proposal was submitted to DOT. In a letter to presumptive U.S. presidential nominees Sen. Barack Obama (D-Ill.) and Sen. John McCain (R-Ariz.), Branson wrote, "BA/AA would have a combination of high frequencies and a transatlantic network that could not be replicated by any other airline/alliance, and which would make it impossible for other carriers to compete for time-sensitive corporate or business travelers." He suggested that the current economic environment should not be justification for approval, writing that "the job of the regulators is to assess the long-term impact of the alliance on competition, not to provide special protection from the immediate challenges of the economic cycle, with which every other airline has to deal with."
After oneworld's proposal officially was filed, Virgin chief executive Steve Ridgway added, "Both BA and AA have barely changed their arguments since the last time they filed for permission from the regulators [in 2001], as they know that the world hasn't changed since they last tried. They would still be dominant at London Heathrow Airport; they would still be dominant between Heathrow and key cities in the United States."
The oneworld carriers asserted just the opposite, pointing to the U.S.-European Union open skies agreement, which opened Heathrow to several new competitors, and antitrust immunity granted to both SkyTeamand Star Allianceas evidence that global commercial aviation changed noticeably in recent years. As a result, the alliance said that "no remedy is needed" to ensure healthy competition on routes from London Heathrow. The carriers appear unlikely to acquiesce to any regulator demands to surrender take-off and landing slots at Heathrow, a precondition for AA/BA immunity requests in 1998 and 2001 that the airlines refused to accept.
Meanwhile, the Allied Pilots Association, representing AA's 12,000 pilots, described the proposal as "problematic on several fronts." APA said management needs the union's consent before pressing ahead and "should focus first on running a more reliable operation before embarking on a new venture of this magnitude and complexity. Our airline, unfortunately, continues to lag the industry to an embarrassing degree in key customer service metrics, such as on-time performance."
Nevertheless, AA, BA and Iberia said they would implement their planned joint venture within 18 months of DOT approval. The larger oneworld grouping would activate its multilateral antitrust-immunity partnership "immediately" following DOT approval. Based on previous precedent set by SkyTeam and Star Alliance immunity requests, such approval, if granted, would take at least several months to finalize.
For transnational companies and their travelers, a key point is oneworld's plans for tighter corporate sales, an area in which the alliance last week acknowledged it has been lacking when stacked up against SkyTeam (led by Delta Air Lines and Air France) and Star (anchored by United Airlines and Lufthansa). "The oneworld product is little more than the stapling of individual carrier contracts together in an alliance wrapper," according to oneworld's DOT filing. "Such a product simply cannot compete in the marketplace, and, despite constant efforts between oneworld's commercial and legal teams to find a solution, the lack of meaningful antitrust immunity has resulted in little to no progress."
The alliance noted that its "inability to coordinate often leads to impossible requirements [for corporate buyers], such as committing to provide more than 100 percent market share to the alliance. This is because the carriers currently set marketshare goals based on their individual--not collective--self-interest.
"Over the years, global corporate customers (comprised entirely of time-sensitive business travelers) have moved away from dealing with individual airlines and toward alliance contracts," oneworld continued, noting that corporate customers can account for almost one-quarter of a network carrier's revenue. "Corporate travel managers are extremely sophisticated and understand the importance of alliances and the depth of their integration. In fact, some corporations are now requiring alliance bids to be from an immunized grouping--taking oneworld entirely out of the picture."
Those claims go quite a bit further than the public comments of oneworld airline sales executives, who for years insisted that antitrust immunity--while helpful--is not a prerequisite for corporate alliance programs.
Now, AA, BA and Iberia said their proposed joint business agreement would allow them to offer "a single integrated deal," as each airline within its respective sphere of regional influence would represent to corporate buyers all three partners.
AA vice president and general sales manager Kurt Stache last week told The Transnationalthat travel managers would enjoy "a more streamlined procurement process. Our goals will be much better aligned, as will be our incentives. The customer will reap the benefits of a quasi-merger without actually merging the companies and changing the brands."
When asked how the carriers would respond to big clients considering rebidding their airline programs in the interim--as the oneworld proposal progresses through the approval process and then possibly an implementation period--Stache said: "Until we receive antitrust immunity, it's business as usual. After ATI, companies (and travel agencies) can renegotiate at that time or decide at what point they want to negotiate a joint deal."