Global Economics

BA-American Tie-Up Requires Concessions


The British Airways alliance with American Airlines should be given antitrust immunity only if slots are ceded or routes U.S. Justice Dept. says

By John Hughes

(Bloomberg) — The British Airways Plc (BAY) alliance with American Airlines should be given antitrust immunity only if some takeoff and landing slots are surrendered or routes are exempted from the partnership, the U.S. Justice Department said.

Without the changes, the proposal "would result in competitive harm on certain trans-Atlantic routes serving 2.5 million passengers annually," the Justice Department said in a filing yesterday. The Transportation Department, which will decide the request, should grant immunity with conditions, the agency said.

AMR Corp.'s (AMR) American, the second-largest U.S. carrier, and British Airways, Europe's third-biggest, would be able to jointly price, market and schedule international flights in their Oneworld alliance without fear of antitrust prosecution, if their request for immunity is granted.

American "disagrees with the conclusions reached by the U.S. Department of Justice," the carrier said in an e-mailed statement. "American looks forward to rebutting the points made by DOJ and expects that the U.S. Department of Transportation will approve our alliance in a timely manner."

The carriers' immunity proposal, filed last year, also includes Iberia Lineas Aereas de Espana SA, Spain's biggest carrier; Finnair Oyj, Finland's largest airline; and Royal Jordanian Airlines, Jordan's state-owned carrier. American, British Airways and Iberia also seek permission to collaborate in a joint business agreement.

Some Fares May Increase

Fares between six city pairs, including New York-London, Boston-London and Chicago-London, would increase as much as 15 percent under the proposed plan, the Justice Department said in the filing.

The Transportation Department "could require applicants to divest slots" to encourage new competition, Justice said, without specifying how many slots could be yielded. Exempting routes from the immunized alliance "preserve incentives of the current market participants to compete," Justice said, without describing which routes should be carved out.

Carriers restricted by law from cross-border mergers try to use the grant of antitrust immunity to act more like single entities. They use each others' routes to expand networks, grow revenue and compete with other large alliances. Oneworld is the third-largest global airline alliance behind Star and SkyTeam.

The Transportation Department in July approved antitrust immunity for Continental Airlines Inc. to coordinate flights abroad with United and eight other carriers as part of the Star Alliance, the world's largest airline group.

Northwest Airlines Corp. and Delta Air Lines Inc., before they merged last year, also received antitrust immunity to collaborate with Air France-KLM, Italy's Alitalia SpA and Ceske Aerolinie AS in SkyTeam, the second-largest alliance.

Previous Requests

American and British Airways previous immunity requests in 1997 and 2001 failed. The department dismissed the first application in 1997 because a U.S.-U.K. treaty liberalizing air services between the nations wasn't completed. A liberalized "Open Skies" aviation accord between the U.S. and Europe took effect last year.

In 2002, the department wanted the carriers to yield enough slots to rivals for 16 daily round-trip flights between Heathrow and the U.S. The carriers declined and withdrew the proposal.

European regulators are also examining the alliance plan. The European Commission said Oct. 2 it sent complaints to American, British Airways and Iberia concerning their agreement on coordinating operations and marketing. The Brussels-based commission said the deal may break EU rules on "restrictive business practices."

U.K. billionaire Richard Branson's Virgin Atlantic Airways Ltd., the most vocal opponent of the alliance proposal, "welcomes the DOJ's findings," company spokesman Paul Charles said in an e-mail. "We have always said that fares would rise, competitors would be squeezed off routes and consumers would be worse off."

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net.


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