European regulators back American Airline's joint venture

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July 15--With only a final OK from U.S. regulators to go, American Airlines Inc. and two of its Oneworld partners are nearly set to launch their joint venture across the North Atlantic.

The European Commission on Wednesday approved the partnership of American, British Airways PLC and Iberia. That gives the carriers antitrust immunity so they can collaborate on pricing, scheduling, marketing, frequent-flier programs and other areas.

The carriers, all members of the Oneworld airline alliance, plan to greatly expand code sharing, or selling their partners' flights under their own name and flight number. That will give American more cities to sell flights to and from in Europe and beyond. Iberia and British Airways would be able to tap American's extensive network in the United States, Canada, Mexico and the rest of the Americas.

"We have long wanted to work more closely with our Oneworld partners in order to offer more products, services and value for our customers, our employees and our shareholders," said Gerard Arpey, American's chairman and chief executive.

"We await final action by the U.S. Department of Transportation on our proposal that will result in more competition in the trans-Atlantic marketplace and thus provide significant public benefit," he said.

Transportation officials gave a preliminary thumbs-up on Feb. 13 to the proposed joint business agreement, complete with antitrust immunity. The department is expected to give its final blessing late this week or early next week.

The European Commission, which raised questions last year about whether the carriers' agreement would be anti-competitive, accepted some concessions offered by the partners. With that, the EC is closing its investigation.

"We have analyzed these commitments, we have consulted other players in the market, and we have concluded that the remedies the airlines have introduced will secure for passengers the benefits of the alliance together with the prospect of additional services provided by other operators," said Joaquin Almunia, European Commission vice president for competition policy.

The commission set in stone for 10 years the offer from American, British Airways and Iberia to:

--Surrender enough slots to allow rivals to operate up to two daily flights from London's Heathrow Airport to New York Kennedy, two to Boston, one to Dallas/Fort Worth and one to Miami.

--Let the competitors' passengers on flights on those routes earn miles in the applicants' frequent-flier programs.

--Allow competitors to feed passengers to and from their own flights to the U.S.-London routes operated by the partners and to pro-rate the revenue from airfares.

While the proponents have touted the benefits of their alliance, opponents warned that the applicants would have a monopoly or virtual monopoly in a number of markets.

Those include the route between Heathrow and Dallas/Fort Worth International Airport, where only American and BA offer nonstop flights.

Almunia said the key point was Heathrow, which accounts for about one-fourth of the 50 million passengers each year between the United States and European Union countries.

He noted that American and British Airways had withdrawn two previous applications to form a partnership, one in 1998 and the other in 2002. They would have been forced to surrender many slots at Heathrow to ensure competition, he said.

"But market conditions have changed fundamentally. Until two years ago, only two European airlines, BA and Virgin Atlantic, and two U.S. carriers, AA and United Airlines, were allowed to operate between London Heathrow and the U.S.," he said.

A 2008 "open skies" agreement between U.S. and European Union negotiators allowed all comers into Heathrow as long as they could acquire the necessary slots. Almunia said carriers added 12 U.S.-Heathrow flights by the end of 2009.

"This is close to the total number of slots required by competition authorities in the 1998 and 2002 proceedings," he said.

In addition, the growth of two competing groups of airlines, the Star Alliance and SkyTeam, has changed the competitive picture across the North Atlantic, as has consolidation that reduced the number of international competitors, he said.

Virgin Atlantic Airways Ltd., which has been battling a BA-American alliance for half its 26 years in existence, sharply criticized the EC's announcement Wednesday.

Half of Virgin Atlantic's flights start or end at Heathrow.

"We have fought this monster monopoly for the past 13 years and are still resolute in our belief that this decision is shameful and consumers will suffer greatly as a result of this deal," Virgin Atlantic president Richard Branson said.

"The European Commission has let consumers down by agreeing to paltry remedies which are wholly inadequate," he said.

In his statement, British Airways chief executive Willie Walsh said the many flights added in London since the 2008 U.S.-Europe agreement "demonstrates that Heathrow is open."

"We await the DOT's final decision but welcome this important and vital step forward," Walsh said.

"Between us, we have agreed to make available Heathrow slot pairs for our competitors to use on services to the U.S. This is a pragmatic decision so that we can get the joint business up and running as soon as possible," Walsh said.

And, in another win for British Airways and Iberia, the European Commission approved those two carriers' planned merger.

How the alliance between American Airlines, British Airways and Iberia may affect Dallas/Fort Worth travelers:

Fares: Don't expect a big change in fare policies between D/FW and London. American and British Airways, the only to airlines to fly the route nonstop, have already been close buddies in the Oneworld alliance. For price competition, North Texas customers will still have to rely on connecting service through other cities.

Flights: No new D/FW flights have been announced. However, BA in December will replace its 229-seat Boeing 777 on the route with 329-seat Boeing 747s. That will increase seats on the route this winter by 14 percent, from 701 each direction to 801.

Connecting service: The three carriers will greatly expand the number of "code share" flights, effectively putting their names and numbers on each other's flights. That'll let American sell many more European destinations as if they were its own.

Corporate sales: The partners will be able to sell their products jointly to corporate customers. Local employers may get discounts and incentives for travel on American, BA and Iberia.

Frequent-flier programs: Members of American's AAdvantage program will be able to earn miles and cash in rewards on BA and Iberia, and vice versa.

SOURCES: The airlines; Dallas Morning News research

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