Continuing last year's themes, Star Alliance airline partners are positioning for further coordination while oneworld allies argue for the right to establish an immunized transatlantic partnership akin to those now in place at Star and the SkyTeam alliance. Oneworld’s antitrust immunity request--covering American Airlines, British Airways, Finnair, Iberia and Royal Jordanian--still is pending at the U.S. Department of Transportation after the U.S. Department of Justice in late December suggested conditions for approval. At the same time, Continental and United airlines seek to bridge their transatlantic antitrust immunity with European Star Alliance partners to Asia by applying for ATI with Japan's ANA. A new twist for 2010 also has SkyTeam looking to Japan, as the Delta and Air France-led partnership reportedly is poised to support and enlist bankrupt Japan Airlines.
Continental in October extracted itself from SkyTeam and joined Star. Along with joint venture partners Air Canada, Lufthansa and United, Continental has established combined travel agency compensation programs and begun negotiating new alliance corporate contracts, according to documents filed to DOT on Dec. 23, 2009. The four carriers "anticipate that their first joint corporate agreements will be completed in the first quarter of 2010."
Oneworld is just trying to catch up, both with Star and SkyTeam (which in 2009 progressed further on integrating corporate sales, meetings programs, travel agency deals and centralized management functions). Oneworld's ATI application originally was filed in summer 2008but AA and BA for a dozen years have been pursuing regulatory freedom to coordinate further.
Dissent From DOJ, Distributor Advocates And Virgin
One of the newest hurdles for oneworld partners came from DOJ, which recommended "slot divestitures or carve-outs, as appropriate," to protect competition. [ DOJ similarly objected to unconditional immunity for Continental and the Star Alliance]. Unchecked transatlantic ATI for oneworld, DOJ wrote, "is likely to result in significant competitive harm in six transatlantic markets where American currently competes with British Airways and Iberia," pushing fares higher by "up to 15 percent" for 2.5 million passengers annually. Those routes, according to DOJ, are Dallas-London and Miami-Madrid (where current nonstop service only is offered by AA, BA or Iberia); New York-London (where "Delta and Continental lag far behind American, British Airways and Virgin in the share of the nonstop business traffic they carry between New York and London," according to DOJ); Boston-London; Chicago-London; and Miami-London. The expected increases in fares on those six routes "are directly attributable to the loss of nonstop competition," DOJ wrote.
DOJ said the travel managers it interviewed indicated a preference "to contract with a carrier that serves [London] Heathrow--even if the corporation was indifferent as to which London airport its local travelers arrived at or departed from--because Heathrow offered better connecting opportunities for their travelers who were heading to points beyond London." DOJ also noted that new entry at London Heathrow is "unlikely" because slots are "difficult to obtain." As it did in its filing on the Continental-Star Alliance immunity application, DOJ also wrote that "few, if any" of the corporate travel managers it interviewed "stated a desire for increased interalliance competition."
Another challenge to oneworld came from travel agency advocates. The American Society of Travel Agents and the Interactive Travel Services Association suggested that "dealings with independent travel distributors" be excluded from any oneword immunity approval. ATI, the groups wrote, would allow AA, BA and their partners to limit a consumer's ability to find and compare flights and airfares; unfairly dictate terms with independent distributors; and "enjoy particularly strong market power in transatlantic travel to London and especially Heathrow, a particularly important market for business travelers, who are major travel agent customers." The oneworld partners "do not make it clear that immunizing joint dealing with travel agents would benefit anyone other than the joint applicants," according to ASTA and ISTA. "ATI with travel distributors is not needed to achieve a product competitive with SkyTeam and Star." ASTA and ITSA had stated similar concerns during DOT's Star Alliance ATI deliberationsin 2008 and 2009. DOT dismissed most of those concerns.
Perhaps the most outspoken opponent of AA/BA immunity, Virgin Atlantic Airways in its most recent submission to DOT reiterated its position and largely agreed with DOJ's analysis. "As Virgin Atlantic has argued in this docket (and as DOJ has apparently agreed), the proposed alliance threatens harm for consumers and threatens to severely distort (if not obliterate) competition in the U.S.-London Heathrow market," according to Virgin.
Virgin again asked DOT to deny oneworld's application, but added that if DOT grants immunity to the alliance, it should include DOJ's recommended conditions and others. "AA/BA on a combined basis would operate almost an hourly 'shuttle' service between [New York] JFK and London Heathrow, a frequency no competitor could ever hope to compete with," Virgin wrote. "For this reason, the number of divested slots must be sufficient to permit competitors to compete effectively with the service and schedule provided by" oneworld partners, partly to create a more balanced playing field for carriers competing for corporate accounts.
Meanwhile, the European Commission continues to investigate possible anticompetitive practices at all three of the major airline alliances. In October, EC sent AA, BA and Iberia a "statement of objections," saying proposed cooperative agreements "may be in breach of European rules on restrictive business practices."
Oneworld Responds
In response to objections, the oneworld applicants restated their view that their proposed coordination "is necessary to create interalliance competition with the already deeply integrated Star and SkyTeam alliances, and U.S.-EU Open Skies has facilitated new entry at Heathrow that will prevent any competitive harm on overlap routes."
On the topic of corporate contracting, the carriers wrote that "no corporate customers opposed the application." They cited a survey of AA's largest corporate customers and a study they commissioned by market research firm Ipsos Mori.
The oneworld partners also attempted to refute other DOJ findings. "There is no evidence that the proposed alliance would harm consumers on nonstop overlap routes," according to their response. "New York-London is highly competitive, and consumers will still have four strong nonstop options in addition to the potential for new entry on a route with the largest local traffic base across the Atlantic. Chicago-London will still have three competing options. ... Boston-London will still have two competing options, with potential new entry."
Oneworld also asserted that "DOJ fails to explain why slot remedies are necessary given the existence of a secondary market that regularly facilitates new entry on U.S.-U.K. and other long-haul routes. Divesting slots without requiring compensation would be nothing more than a value transfer from the smallest alliance to its larger competitors."
DOT by press time had not announced the next step in its review of the oneworld application.
Implications In Japan
As oneworld awaits a decision on its transatlantic immunity request, the alliance may be losing a strong Asian anchor. According to published reports, bankrupt Japan Airlineswill accept support from and align with Delta Air Lines and the SkyTeam alliance, thereby abandoning AA and oneworld. Oneworld for three yearshas relied on JAL's transpacific lift to Japan and intra-Asia Pacific network to better serve corporations. JAL at press time had not announced any alliance decisions.
"If [JAL] goes to SkyTeam and then AA and BA don't get antitrust immunity, I wouldn't want to be at AA. I don't know what they will do," said TCG Consulting air practice director Barry Rogers.
Meanwhile, along with Japan's ANA, Continental and United last month applied for authority to implement a three-way, antitrust-immunized, "highly integrated, metal-neutral joint venture agreement for the carriage of transpacific traffic."
The Pacific joint venture would allow ANA, Continental and United "to jointly manage" flights, share revenues and offer customers "a greater selection of routings" and lower fares. They plan to coordinate sales, marketing, scheduling, distribution, pricing, loyalty programs and other functions; offer "convention products, group travel products, joint incentive programs for specific categories of frequent flyer program participants (e.g., elite members)"; pursue "joint bids for government and corporate contracts"; and align "the presentation and sale of their services in computer reservations systems and the operation of their internal reservations systems."