American, British Airways stress competition in Oneworld alliance debate

June 11, 2009
Debate hinges on London's Heathrow


Jun. 11--The epicenter of a battle over American Airlines Inc's alliance with British Airways PLC turns out to be the same place it has been for more than a decade -- London's Heathrow Airport.

That's not where American, British Airways and its partners want the attention. They'd like regulators to focus on maintaining competition among global alliances and to grant their Oneworld alliance the same immunity from antitrust laws that carriers in the Star Alliance and SkyTeam alliances have enjoyed for years.

"Star and SkyTeam have grown tremendously in market share," said Kevin Cox, American's vice president of state and community affairs. "For those interested in competition, the quickest and the most sure way to ensure that trans-Atlantic competition remains robust is to put a third player on the playing field that can compete head to head with them. That's the Oneworld alliance."

But the most vigorous opponents of an American-BA linkup, Sir Richard Branson and his Virgin Atlantic Airways Ltd., won't let the debate stray far from Heathrow, one of the world's leading international airports.

Branson, in filings and public comments, says Heathrow's spot in the world's aviation picture makes it unique, and antitrust immunity for Oneworld would give the players too big a position there.

"It's vital that regulators understand that this isn't just another alliance," Branson said in a May speech to the National Press Club. "It's an attempt to stitch up the most important long-haul routes from Europe's most important airport."

While this Heathrow vs. competition debate goes on, regulators and politicians on both sides are taking a fresh look at whether they should allow these protected alliances at all. Labor groups are asking regulators to delay a decision on the antitrust application, saying they're concerned about job losses.

This isn't the first time that American and British Airways have tried to strengthen their ties. A 1996 application for antitrust immunity died in 1999 because the U.S. and U.K. governments couldn't agree to a new treaty to open up Heathrow.

In 2002, the carriers withdrew a second application after regulators said the two airlines would have to give up enough scarce landing slots at Heathrow to allow 16 daily round trips by competitors.

Although the British and U.S. governments couldn't work out an agreement, the efforts were superseded by talks between European Union and U.S. negotiators. In 2007, the two sides agreed to open up the skies so that any U.S. airline could fly to any city within the European Union, including those in the United Kingdom, and any carrier from a European Union country could fly to any city in the U.S.

The "open skies" policy took effect in late March 2008. In August, American, British Airways, Iberia, Finnair Oyj and Royal Jordanian Airlines, the five key Oneworld members that fly across the Atlantic, asked the U.S. Department of Transportation to bless their alliance with antitrust immunity.

That would let them jointly set fares, market their services, coordinate their schedules and frequent-flier programs, and take other actions that U.S. antitrust laws now prohibit.

Dating from the alliance between Northwest Airlines Inc. and KLM Royal Dutch Airlines in 1993, other major international carriers have been pairing up. Over time, they've won antitrust immunity from the U.S. government, including key members of the competing SkyTeam and Star Alliance.

As transportation officials are weighing the American-BA application, they've combined it with the application of Continental Airlines Inc., which wants antitrust immunity as it switches from SkyTeam and joins Star Alliance members Air Canada, United Airlines Inc., Lufthansa German Airlines and others in their partnership.

Economics professor James W. Brock of Miami University in Ohio said the American-British Airways alliance should be rejected. The two carriers simply control too much traffic between the United States and the United Kingdom, the largest segment of trans-Atlantic traffic, he said.

However, he doesn't like antitrust immunity for the other alliances either, and said he's "sympathetic to the argument that there shouldn't be any" alliances.

"What is the point of us having an open skies policy if carriers combine and ally and close the skies?" Brock said. "That strikes me as just contradictory and wrong. The whole point of open skies was to open air travel to competition from around the world."

However, Nawal Taneja, a professor at Ohio State University, said the American-BA alliance should be allowed. The governments have to be fair, and Oneworld carriers aren't that different from other carriers that have received antitrust immunity, he said.

"If you're going to allow one set of carriers -- Delta-Air France, Lufthansa-United, Northwest-KLM -- to go ahead with it, then why not BA and AA?" asked Taneja, who chairs the aviation department in Ohio State's engineering college. "Either you do it for everybody or you don't do it for anybody."

He also sided with American and British Airways in their argument that competitors can now gain access to Heathrow. Airlines can buy takeoff and landing rights from other carriers or get them from alliance partners, and he noted that Delta Air Lines Inc., Continental, Northwest and US Airways Inc. now all have flights into Heathrow.

"Yes, it's more difficult, it's more complex, but it is possible to get [takeoff and landing] slots," Taneja said.

In addition, "in some ways competition would increase," he said. "It would allow passengers an alternative way to get to a destination via a connection through London."

Regulators have until Oct. 31 to decide between the Branson and Virgin view that the American-British Airways linkup would create a "monster monopoly" at Heathrow or the American-BA position that, as Cox asserts, "really isn't about London Heathrow."

"This is about network carriers and allowing the five trans-Atlantic carriers that are members of Oneworld to compete on the exact same playing field that Star and SkyTeam have," said Cox.

"And anything beyond that is a red herring."