DOJ Says Nay To AA/BA Play

Washington - The Justice Department on Monday urged the Department of Transportation either to impose conditions on a proposed American Airlines-British Airways immunized alliance, including the surrender of at least 126 weekly slots at London's tightly controlled Heathrow Airport, or reject the proposal. DOJ's filing backs that of Continental Airlines, Delta Air Lines and Northwest Airlines, all of which applauded yesterday's statement.

DOJ cautioned "against approving the AA/BA transaction as proposed," suggesting instead that enough take-off and landing slots for seven daily roundtrips to New York and two to Boston are allocated to other competitors, replacing AA's existing service in those markets. It also advocated withholding antitrust immunity for joint pricing on the London-Dallas and London-Chicago routes, noting that competitors are unlikely to enter routes connecting AA's and BA's main hubs, even if slots are made available. Furthermore, DOJ noted that AA/BA immunity "would eliminate the two airlines' current competition for contracts with corporations in some of the largest and most lucrative business travel markets in the world."

In a joint statement in response, AA and BA termed the divestiture of 126 weekly slots "inappropriate," but added that DOJ's opinion "is not unexpected from an agency that has traditionally taken the hardest line in previous airline competition matters." The two carriers noted, however, that DOJ recognized competitive changes in the U.S.-U.K. market since they last attempted to form an alliance. "DOJ establishes an outer limit of potential remedies that is far improved from those it advised in the 1996 application," they said.
Indeed, AA/BA were asked to hand over 336 weekly Heathrow slots in an earlier bid for antitrust immunity. Their refusal to do so ultimately led to rejection (BTN, Aug. 2, 1999).

DOJ did not state any objection to a similar immunity proposal for United Airlines/BMI British Midland, which DOT already has tied together with the AA/BA case. "British Midland is not currently an actual or potential competitor in the U.S.-London markets," the department said. "Its alliance with United would not reduce competition."

Meanwhile, remaining unsettled is a new Open Skies agreement between the United States and the United Kingdom-seen by many as a necessary precursor to AA/BA immunity and supported yesterday by DOJ with the condition that Heathrow slots are used "to provide substantial new air service" across the Atlantic. Both countries have been eager to hammer out a deal before the European Union begins negotiating air treaties on behalf of all member states, effectively preventing new, bilateral relationships. A European court ruling to push that process forward is expected early next year.

"This proceeding offers an opportunity to transform a market that has been severely restricted for decades into one where significant new entry can occur," said R. Hewitt Pate, deputy assistant attorney general for DOJ's antitrust division.