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Both Airlines Speak Out

Virgin Atlantic and American Airlines comment on Delta-JAL venture and each other

eTN Staff Writer  Nov 12, 2009

The issue is the proposed joint venture between Delta and Japan Air Lines. The discussion, seemingly also known as finger pointing, is between Virgin Atlantic and American Airlines. Here we present each side and let you draw your own conclusions.

Virgin Atlantic

Virgin Atlantic today asked US regulators in a regulatory filing to act on hypocritical comments made by the head of American Airlines about what constitutes dominance in aviation markets.

Commenting on Delta's plans to persuade Japanese airline JAL to switch to SkyTeam, the CEO of American Airlines, Gerard Arpey, told his managers that Delta's "extensive presence" at Tokyo's Narita Airport would make it difficult for Delta to obtain antitrust immunity from the Department of Transportation for the carrier's planned joint venture with JAL.

Delta and JAL together would have lower market shares between the US and Narita than BA/AA would have between the US and Heathrow.

Mr. Arpey also told his managers that American Airlines would raise strong regulatory objections to Delta and JAL's collaboration and expressly said that that "if JAL were to change horses (from Oneworld), we would certainly argue that they might not be allowed to even code-share, let alone have immunity with the dominant carrier in Narita."

American has vowed to fight the linkup between two of the largest players in the US-Japan market on competition grounds, arguing that the carriers' high combined market shares and large slot holdings at Narita (a severely constrained airport like London Heathrow) would pose a major threat to competition.

Yet, Mr. Arpey argues that it's fine for regulators to let through American's planned merger with BA, which would have market share levels of between 47 percent and 100 percent.

Steve Ridgway, chief executive of Virgin Atlantic, said: "Virgin Atlantic absolutely agrees with American Airlines that a high level of market concentration should be an insurmountable hurdle to obtain antitrust immunity for a possible alliance such as BA/AA. Mr. Arpey has clearly highlighted why dominant groups like AA and BA shouldn't be given regulatory clearance. We have asked the DOT to further investigate his views as American cannot have it both ways."

The Delta-JAL joint venture would result in a total capacity share on US-Narita routes of 54 percent, significantly smaller than the 64 percent share that BA/AA would hold on US-Heathrow routes.

In addition, the Delta-JAL joint venture would result in overlaps on services between Narita and only three mainland US cities (LAX, SFO and JFK) where their combined share of capacity would range between 36 percent and 60 percent. In marked contrast, the BA/AA alliance would result in overlaps on six routes, where their combined capacity share ranges between a remarkable 47 percent to an astounding 100 percent.

Mr. Arpey's remarks follow comments from Bob Crandall, who was chairman and CEO of American Airlines when it first tried to merge with BA in 1996. He recently said, "Any objective observer would have to look very hard to find a way in which alliances have benefited consumers."

American Airlines

Once again, Virgin's comments are long on accusations and rhetoric and short on the facts. American is opposed to a Delta-Japan Airlines (JAL) tie-up for the same reason we are confident our transatlantic immunity application will be approved: to preserve and enhance competition.

SkyTeam with a Delta-JAL combination would account for nearly 60 percent of US-Tokyo passengers, as opposed to oneworld's approximate 44 percent share of US-London passengers. AA and British Airways only account for about 40 percent of US-UK traffic, whereas Delta-JAL would consolidate the positions of the two largest US-Japan carriers with more than 60 percent share of US-Japan passengers, leaving oneworld with just a 6 percent share.

In addition, significant competition will remain after AA and BA receive immunity, as 78 percent of travelers on city pairs where AA and BA both provide nonstop service would continue to have three or more competitive options. Just 27 percent of passengers on city pairs where Delta and JAL overlap would continue to have three or more competitors for transpacific service.

The bottom line is we're aiming to level the playing field for alliance competition in the transatlantic market and to prevent an unlevel field for alliance competition from evolving in the transpacific.

Virgin Atlantic and American Airlines comment on Delta-JAL venture and each other
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