ONEWORLD'S SLOT SURRENDER
By Joe Brancatelli
March 11, 2010 -- The decade-long quest of American Airlines and British Airways to create a quasi-merger of services took still another twist this week as the two carriers, and its Oneworld Alliance partner Iberia, offered to surrender some coveted takeoff and landing "slots" at London's crucial, but overcrowded, airports.
The offer of six pairs of slotsówhich would permit competitors to add 42 weekly flights between the United States and Britainówas made to European Community regulators who can scuttle any deal. Last month, the U.S. Transportation Department approved antitrust immunity for BA, AA, and Iberia if the airlines surrendered four pairs of slots, which would create room for 28 new flights from its competitors.
Carriers attempting to gain antitrust immunity to align schedules, in-flight products, and prices is all the rage in airline circles and much more popular than outright mergers, which require much more messy legal, financial, cultural, and political approvals. But the long uphill battle by American and British Airways to get their so-called ATI status has overshadowed the dramatically shifting geography and financial fortunes of some of the world's major carriers.
Many of the world's major carriers have now shoehorned themselves into one of three broad alliances. The Star Alliance boasts three U.S. carriers, Continental, United, and US Airways; the European behemoth Lufthansa and subsidiaries such as Swiss International, Austrian Airlines, Bmi of Britain, and Brussels Airlines; SAS Scandinavian; and important Pacific Rim airlines such as Singapore Air, Thai Airways, Air New Zealand, and ANA of Japan. The SkyTeam Alliance is fronted by Delta Air Lines, now the world's largest carrier; Air France and KLM, divisions of a transnational European holding company; fast-growing Korean Air; and smaller players like Czech and Alitalia. Both SkyTeam and Star are aided by the fact that its major U.S. and European partners already have antitrust immunity.
But Oneworld, which also includes Finnair, Cathay Pacific of Hong Kong, Qantas of Australia, and now-bankrupt Japan Airlines, is hobbled by the lack of ATI coverage for American and British Airways. And that's ironic because American and BA have been trying for antitrust immunity longer than any two carriers in history.
American and BA's previous attempts to get ATI coverage floundered because of two simple facts: American was the largest carrier in the United States and, briefly, the largest carrier in the world, while British Airways was Britain and Europe's largest airline. Moreover, American and BA had a virtual stranglehold on the important New York-London route and dominated the entire U.S.-U.K. market.
But conditions have changed drastically since the Oneworld Alliance was founded in 1999. American has shrunken and been overtaken by Delta. And while BA still dominates the United Kingdom and holds a majority of the takeoff and landing slots at London's bellwether Heathrow Airport, it has been surpassed in Europe by Lufthansa and the merged Air France-KLM. Moreover, Lufthansa became the second-largest holder of slots at Heathrow Airport last year after it took controlling interest of Bmi (formerly British Midland), Britain's second-largest airline.
Still, a potential tie-up between American and BA is problematic because there is a wild-card carrier that operates between the United States and Great Britain. That airline, Virgin Atlantic, is fronted by Sir Richard Branson, Britain's greatest showman, best-known entrepreneur, and a persistent opponent of the American-BA deal. And despite being 49 percent owned by the Star Alliance-allied Singapore Airlines, Virgin Atlantic itself is not a member of any of the three global alliances. Branson fears that an antitrust grant to American and British Airways would make it nearly impossible for Virgin to compete across the Atlantic.
Whether Branson is right is anyone's guess. But Virgin Atlantic's position is unique. When the Star Alliance carriers received their ATI coverage with Lufthansa, no major airline based in Germany was being threatened. Ditto for the SkyTeam Alliance between Delta and Air France-KLM. For all intents and purposes, Air France and KLM represented 100 percent of their home market's traffic.
Even the most skeptical observers now think antitrust immunity for American and British Airways is, finally, inevitable. Some former critics of the tie-up favor it now because it would make Oneworld a more formidable competitor to SkyTeam and Star.
But nothing is ever certain in the airline world. The U.S. Transportation Department's approval is not yet final and is being appealed by Virgin Atlantic. And the European Community's review of the AA-BA slot-surrender proposal won't even start until the end of a 30-day period of public comment.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
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