The long-sought antitrust immunity between British Airways, American Airlines and Iberia for their OneWorld alliance has hit another patch of turbulence with the E.U. as they attempt to gain the same interoperability enjoyed by competing Star Alliance and SkyTeam.

For years and through two previous AA/BA antitrust immunity applications, the E.U. and U.S. regulators have faced problems with the two airlines’ control of Heathrow Airport. But now, some insiders say the tie-up with Iberia has added to some new antitrust concerns

For years, Virgin Atlantic who competes with BA in and out of Heathrow has been adamant against the fruition of this alliance. They have repeatedly stated, “Virgin Atlantic would expect the Commission to find that the proposed alliance would damage competition and consumer interests on all six of the routes from [London] Heathrow to the US on which BA and AA both operate currently. These include Heathrow to New York JFK on which BA and AA together would control 62 percent of all capacity and would have an unassailable grip on time-sensitive premium passengers.”

In the U.S., the OneWorld alliance is the only one of the three major alliances that has not received the blessing of the Department of Transportation (DOT).

SkyTeam with Delta and Air France-KLM as the leading airlines, is in the midst of actually setting up a joint venture that will lead to the closest cooperation possible — bordering on a separate international airline without U.S. domestic rights.

The Star Alliance anchored by Lufthansa, United and (soon) Continental has been exchanging international marketing information and coordinating flights for years. They even have a livery painted as Star Alliance. From the paint job, one wouldn’t know whether they were getting aboard a United, USAirways or Lufthansa plane.

But these alliances are not out of the regulatory woods yet. The FAA Reauthorization Bill passed by the House of Representatives has a controversial “sunset provision” (H.R. 831) that would require a re-examination of the current airline alliances. And the E.U. has signaled that their investigators still are not finished looking at the other two major alliances.

The EC competition watchdog said it had sent a charge sheet to the three airlines. Since April, it has also been investigating similar deals between the 24 members of the rival Star Alliance – including BMI, United (UAUA) and Lufthansa (LHAG.DE) – as well as the SkyTeam partnership of 11 airlines including Air France-KLM (AIRF.PA), Delta (DAL) and Aeroflot (AFLT.RTS). It has yet to move on either inquiry.

Obviously the international alliance game is still afoot.

OpenSkies, once branded as the ultimate competition machine, designed to break the decades-old system of bilateral airline agreements, has not kicked into full gear because of the world’s economic problems. Someday, when funds become available and passengers begin to travel in greater numbers, airlines will be able to focus on more point-to-point routes.

Here at home, the DOT approves alliance antitrust immunity based on phantom customer service improvements and the Department of Justice continues to focus on loss of competition. In the wings congressmen are harboring serious concerns about the growth of airline alliances and their effect on suppliers and airports as well as passengers.

DOT 42-09
Tuesday, April 7, 2009
Contact: Bill Mosley
Tel: (202) 366-4570

DOT Proposes to Approve Star Alliance Plan to Add Continental, Establish Joint Venture

The U.S. Department of Transportation (DOT) today proposed to grant antitrust immunity to Continental Airlines for its participation in the Star Alliance, and to approve a new joint venture among four of the alliance’s members. Antitrust immunity allows airlines to coordinate their services and act as a single carrier for international air services covered by the immunity.

In a show-cause order issued today, the Department tentatively decided to grant immunity to new alliance member Continental and to allow Air Canada, Deutsche Lufthansa Airlines, United Air Lines, and Continental Airlines to place a portion of their international air services within a new joint venture, to be called Atlantic Plus-Plus. Under the venture, the carriers would jointly arrange capacity, sales and marketing as well as share revenues.

The Department tentatively concluded that granting antitrust immunity to Continental to join the alliance and approving the joint venture would be in the public interest because it would support increased levels of service in international markets served by the carriers, give consumers more travel options and shorter travel times, and reduce fares. The United States has open-skies aviation agreements with all of the home countries of the carriers involved in today’s decision. Open-skies agreements provide for international market access to all home-country airlines.

As a condition of obtaining antitrust immunity, the Department proposed to require that the carriers implement the new joint venture within 18 months. The carriers also must provide annual reports to the Department about the implementation of their alliance agreements. The Department stressed that the carriers would remain subject to antitrust laws with respect to domestic service.

The Department first granted immunity to Star Alliance partners in 1996, when it approved an alliance between United and Lufthansa. Other members of the alliance are Air Canada, Austrian Airlines, British Midland Airways, LOT Polish Airlines, Scandinavian Airlines System, Swiss International Air Lines, and TAP Air Portugal.

Interested parties will have three weeks to file objections to today’s tentative decision. The parties then will have seven business days to respond to objections. After analyzing all comments filed, the Department will issue a final decision. The show-cause order, alliance application and public comments are available on the Internet at http://www.regulations.gov, docket number DOT-OST-2008-0234.

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The Oneworld alliance has gained the support of California’s Governor Arnold Schwarzenegger in its application for antitrust immunity status, or ATI. But has the Governator seen this issue from the travelers’ side?

During the past year (actually for years), British Airways, American Airlines, Iberia Lineas Aereas de Espana SA, Finnair and Royal Jordanian have been seeking ATI status which would allow the airlines to work more closely together and bypass monopoly laws in the U.S. Should they gain ATI approval, they would be able to work together on scheduling and pricing in a deal that would also involve revenue sharing.

While the other alliances, Star and SkyTeam, have alliances already approved, the Oneworld alliance evidently is asking for a bit more antitrust immunity than that given the other players. Not only will they have a stranglehold on London Heathrow, the busiest Europe hub for transatlantic flights, but they want stronger powers to negotiate with suppliers and agents.

At least that is what I gather from hearsay remarks. The full details of their application are not publicly known, since their application for ATI has been shrouded in secrecy.

During this month of “sunshine” in government, the Oneworld filings with the Department of Transportation (DOT) are still heavily “redacted.” Reporters and consumer advocates are not allowed to view their comments sent along with their request for antitrust immunity. Only lawyers who promise secrecy can take a peek at what AA, BA, Iberia and their friends are are asking for.

Schwarzenegger urged the DOT to approve the airlines’ application, which would “allow them to compete with the Star and SkyTeam alliances, which already have broad antitrust immunity for transatlantic flights.”

Since he is not a lawyer and his lawyers are not allowed to pass along the information under secrecy provisions imposed by DOT and Oneworld, I can’t imagine how he knows that the immunity requested by Oneworld is the same as that already granted to Star and SkyTeam.

His assertions that the alliance antitrust immunity “will positively impact the air travel industry” by offering customers more service, scheduling and pricing options and “will help ensure that they continue to benefit from having three competitive air alliances,” flies in the face of growing concerns at the Department of Justice and the DOT as well as with the House Committee on Transportation and Infrastructure and with the Senate Committee on Commerce, Science and Transportation.

Basically, because of the effective creation of an oligolopy through the formation of three main airline alliances, consumers are now getting less choice, higher prices, more difficult baggage transfers, uncertain service, confusing information on airline ticketing and a falloff in competition between not only the different alliances, but between the members of each alliance.

All of these improvements are rendered under the guise of more customer service facilitated by antitrust immunity, joint airline club memberships and lots of frequent flier miles spread among alliance partners to make passengers think they are getting a good deal.

Arnold, please take another look at these airline alliances and get on the side of the airline passengers and their pocketbooks. Terminate your airline support.

Originally published in Tripso.