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American Airlines - British Airways Deal

US Justice Department: AA-BA deal would lead to 'competitive harm'

Rob Lever  Dec 22, 2009

WASHINGTON — The US Justice Department said Tuesday a tie-up of British Airways and American Airlines for transatlantic flights would lead to "competitive harm" and called for restrictions on the deal.

The Justice Department's antitrust division made its recommendation to the Department of Transportation (DOT), which will make a final ruling on closer cooperation between BA, American, Iberia and other carriers in the "oneworld" alliance.

The request for antitrust immunity, which would allow closer cooperation among the carriers, "would result in competitive harm on certain transatlantic routes serving 2.5 million passengers annually," the Justice Department said.

It concludes that fares between six transatlantic routes "could increase up to 15 percent under the proposed agreements."

"The applicants claim substantial benefits will flow from an expanded alliance, but they have not shown that immunity is necessary to achieve these benefits," the review said.

The report recommends that the Transportation Department "impose conditions" including removal of some slots for the affected carriers "to protect the public interest in competition."

It said any immunity might also include a "carveout" of some routes that would not be included in any cooperation.

"A joint venture is likely to harm competition if it would increase the participants' ability or incentive to raise price or reduce output in any relevant market," the Justice Department concluded.

In one example, it noted that "American and Iberia are the only current nonstop competitors between Miami and Madrid," and that "competition would be lost if (the airlines) were to implement their agreements as proposed."

Other routes where competition might be hurt would be Boston-London, Chicago-London, Dallas-London, Miami-London, and New York-London.

Reacting to the announcement, British Airways said it would "be making a robust response" to the comments in the hope that the Transportation Department overrules the recommendations.

"It's important to note that the issues raised today by the DOJ are virtually identical to the DOJ?s filing in the Continental/ United Star alliance case, which the DOT ultimately rejected." BA said.

"The quickest way to enhance competition in the global aviation marketplace and provide a competitive balance is to grant oneworld?s application for immunity. This will ensure a level and competitive playing field with both the Star and SkyTeam alliances who have already received this same grant of immunity."

SkyTeam is an alliance of 11 carriers including US-based Delta and Air France. Star includes 26 carriers including United, US Airways, Germany's Lufthansa and Japan's ANA.

Last year, American Airlines, British Airways and Iberia of Spain signed an agreement to cooperate over flights between North America and Europe to help them overcome soaring fuel costs and other industry woes.

BA, AA and Iberia are part of the 11-airline oneworld alliance, and are seeking, along with oneworld partners Finnair and Royal Jordanian, antitrust immunity from the US government on transatlantic flights.

The proposed tie-up has drawn the ire of billionaire Richard Branson, who has argued the deal would threaten rivals, including his own Virgin Atlantic. AA and BA disputed those allegations.

US Justice Department: AA-BA deal would lead to 'competitive harm'
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Source: AFP

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