AA Does AA-BA Deals

<B> AA Does AA-BA Deals</B>
<I>Antitrust Immunity Imperiled For Others</I>

By Jay Campbell

American Airlines is giving alliance-like deals without its allies' knowledge, holding market share that otherwise would be lost to its more integrated alliance competitors, particularly over the North Atlantic.

Several travel managers and agency sources said the carrier has been signing corporate contracts offering discounts for flying to Europe via a London connection on British Airways, and funding the discount out of its portion of the interline revenue. As long as the airlines don't actually talk to each other on pricing, the sources said, they're doing nothing illegal. And yet they are offering benefits which, it would seem, only the most integrated alliances have. AA's sales department declined to comment.

"I'm only speaking based on anecdotal conversations, but American is offering that type of deal selectively," said Richard Plummer, travel manager for Glaxo Wellcome in London. "I said to them, 'Look, you and BA are my two preferred suppliers,' but they won't even get in the same room together. In this kind of arrangement, I think AA is, in essence, swallowing the cost themselves."

American is sidestepping antitrust issues at the same time that airline experts are questioning the long-term prospects for the U.S. government's practice of granting antitrust immunity to international alliances in exchange for Open Skies agreements.

Although antitrust immunity has traditionally been seen as a way for corporations to develop contracts with the alliances, "you don't need immunity to do joint contracts," said Swissair CEO Jeffery Katz late last month. "Just look at what AA and BA are doing."

Observers believe AA is attempting to recoup some of the transatlantic luster it lost after exiting a number of key routes, including New York-Brussels, New York-Zurich and Miami-Frankfurt, in the face of competition from the Atlantic Excellence and Star alliances. One AA corporate customer who hadn't heard of the deals, said he would "have to ask them about that."

Insiders also said AA is cutting similar deals to Asia on interline connections with Asian carriers. "AA said, 'If you fly us to Japan, then connect, say, on Japan Air Lines or Cathay Pacific, you can book us and take the AA discount off the connection also, and we'll make up for it with the other carrier," said one buyer. "It's as close to an alliance discount as there is out there."

The offerings, at least for transatlantic flights, are making their way to the agency side as well.

"AA's doing a lot of fun stuff, and it's sending BA into conniptions," said one agency executive. "They're still competing, but AA's including BA in contracts without even asking them. They're underwriting the connection onto BA, say from London to Prague, and telling us, 'Fly me to London, connect on BA, and I'll pay the whole incentive.' "

Continental and Northwest Airlines also are exploring modified alliance contracts. Continental now is committed to fully understanding by June what it and Northwest can do together in the corporate market.

"I'm going to be spending all my time trying to figure out how we can do joint deals with Northwest," said Mark Bergsrud, Continental's vice president of revenue programs. "There are a lot of legal, data, settlement and pro-rate issues to be resolved. We've made it a priority, but we're facing a difficult process. Antitrust immunity would make it easier."

Until now, he said, "the corporate customer's experiences with alliances have been neutral. The value isn't there yet. But those who do it first will reap huge benefits."

Whether they need it to negotiate corporate deals or not, it would appear that AA-BA and CO-NW have given up on any desire to seek antitrust immunity. That's probably wise, since immunization increasingly is coming under fire.

Following the negotiation of liberalized aviation bilaterals between the Clinton Administration and most of the industrialized world (with the notable exception of the United Kingdom), many say the immunity concept is becoming obsolete as a negotiating chip in bilateral talks. As a result, the U.S. Department of Transportation may restrict or even revoke its previous allowances of immunity.

Among those carriers already granted immunity--which, according to CIBC Oppenheimer airline analyst Julius Maldutis, "says you can do illegal things," like coordinate pricing, "and not go to jail"--are Northwest and KLM; Delta, Austrian, Sabena and Swissair; United and Air Canada in North America; United, Lufthansa and SAS to Europe; and American and Canadian Airlines.

"My prediction is that after the U.S. government has achieved its last Open Skies agreement, the chaps at DOJ will conclude that antitrust immunity is anticompetitive and the game will be all over," Maldutis told a Global Aviation Associates conference on airline alliances in Washington, D.C., late last month.

TWA, a have-not carrier in the alliance game, and the American Society of Travel Agents also have spoken out against antitrust immunity in recent months, calling for the President to revoke it.

Said TWA CEO Gerald Gitner, "We question whether it was necessary to grant any of these alliances immunity to engage in price fixing and revenue pooling, joint activities that would be unlawful in any other industry. The result of these otherwise illegal activities has been the elimination of competition in several major transatlantic markets."

TWA asked that joint frequent flyer programs, joint corporate discounts and joint agency overrides be disallowed.

DOJ is still scheduling its review of immunity for KLM and Northwest, which would be the next opportunity for the Administration to reposition its stance regarding the topic. Congressional legislation soon could address the issue as well.

"Antitrust immunity is probably at risk in the future, but I don't think it matters anyway," said Swissair's Katz, who formerly headed AA's Sabre Group. "There is such perfect information out there, alliance carriers can operate without immunity, although it does give you a bit more speed and coordination."

Clearly, the interline discount arrangements offered by AA, as well as whatever CO-NW comes up with, do not offer the kind of contractual seamlessness that deals by immunized alliances can. But perhaps it's the best they can do in light of what AA CEO Don Carty called its "slightly hamstrung relationship with BA."

AA-BA is trying to keep up with the Atlantic Excellence partnership and much of the Star Alliance, which already are offering attractive contracts to their best corporate customers (<I>BTN,</I> Feb. 22). Further, Northwest-KLM and American-Canadian essentially are acting as single units, where signing a contract with one automatically includes the other.

However, there is some disagreement about how good these contracts are, based on the unique travel patterns of each corporate customer. For example, the travel manager at one huge account said the Atlantic Excellence contracts are "convoluted in terms of operation and execution, where you have one discount for the Shuttle and another for Delta Express and another for exit-U.S. and for intra-U.S."

Still, an even larger global account called its Atlantic Excellence deal "flawless.