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European Commission oks trans-atlantic partnership

Aviation news: EU approves alliance of American Airlines, British Airways and Iberia

TERRY MAXON  Jul 14, 2010

The European Commission said Wednesday it has approved the partnership of American Airlines Inc., British Airways PLC and Iberia, letting the Oneworld members to cooperate on their service across the North Atlantic.

With the European decision in hand, the carriers now need to get a final blessing from the U.S. Department of Transportation to proceed. DOT gave preliminary approval on Feb. 13, but has not yet issued a final order.

The European Commission, which last year raised questions about whether the carriers’ joint business agreement would be anti-competitive, accepted some concessions offered by the partners.

“We have analyzed these commitments, we have consulted other players in the market, and we have concluded that the remedies the airlines have introduced will secure for passengers the benefits of the alliance together with the prospect of additional services provided by other operators,” said Joaquín Almunia, European Commission vice president for competition policy.

American, British Airways and Iberia had offered to:

• Surrender enough slots to allow rivals to operate two daily flights from London’s Heathrow Airport to New York Kennedy, two to Boston, one to Dallas/Fort Worth and one to Miami.

• Let passengers on those competing flights earn miles in the applicants’ frequent-flier programs.

• Allow competitors to feed passengers to and from their own flights and to prorate the revenues from airfares.

The carriers, all members of the Oneworld airline alliance, plan to greatly expand “codesharing,” or selling their partners’ flights under their own name and flight number. They’ll also cooperate on pricing, scheduling, marketing and in other areas.

“We have long wanted to work more closely with our Oneworld partners in order to offer more products, services and value for our customers, our employees and our shareholders,” said Gerard Arpey, American’s chairman and chief executive officer.

“We await final action by the U.S. Department of Transportation on our proposal that will result in more competition in the trans-Atlantic marketplace and thus provide significant public benefit,” he said.

In their DOT application, the three are seeking approval for a joint business arrangement. In addition, they’re asking for antitrust immunity with Oneworld members Finnair Oyj and Royal Jordanian Airlines. They plan to begin their new relationship in fall 2010.

The requirement to allow rivals an additional two London-New York flights may be met by Continental Airlines Inc .’s plans to add two flights from Newark, N.J. this year – one that started in late March and another scheduled to launch in late October.

British Airways praised the European Commission’s green light for the partnership.

“We await the DOT’s final decision but welcome this important and vital step forward,” British Airways chief executive Willie Walsh said.

In his statement, Walsh said the many flights added into London since a 2008 U.S.-Europe agreement opened up the London market “demonstrates that Heathrow is open.”

“Between us, we have agreed to make available Heathrow slot pairs for our competitors to use on services to the U.S. This is a pragmatic decision so that we can get the joint business up and running as soon as possible,” Walsh said.

“The slot commitments provide a further guarantee that there will be no possible loss of competition as a result of our joint business,” he said.

Virgin Atlantic Airways Ltd. has heavily opposed the application, arguing that American and British Airways already held too strong a competitive position at Heathrow.

"We have fought this monster monopoly for the past thirteen years and are still resolute in our belief that this decision is shameful and consumers will suffer greatly as a result of this deal,” Virgin Atlantic president Richard Branson said. “The European Commission has let consumers down by agreeing to paltry remedies which are wholly inadequate.”

He said his carrier “will continue to compete to win passenger and corporate business despite this massively uneven playing field which we are forced to compete on."

Last month, at an aviation subcommittee hearing, Oberstar called the merger "a terrible, awful no-good thing." He declared that airlines "work night and day trying to figure out how to squeeze more money out of this turnip they've got in their hand, and I'm determined that won't happen."

While fares are indeed rising, it's important to note that with inflation factored in, fares are below 1990 levels. And clearly, any effort to restrict fees would endanger the industry's recovery, which will become clear next week when every major airline (except for American) is expected to report a second-quarter profit. It must be said that if airlines are indeed trying to squeeze money out of a turnip, they need to squeeze harder. As US Airways CEO Doug Parker has said, the United States is not well served when an industry that is so crucial is so fragile economically.

Additionally, airline investors -- and ultimately, airline passengers -- are not well served by attempts to futher minimize industry profits.

At a May hearing on proposed merger, United CEO Glenn Tilton told the Senate Judiciary Committee's antitrust subcommittee that the industry has had "the worst financial performance of any industry in the U.S. over the last 30 years" and "has been systematically incapable of earning even a modest profit."

Aviation news: EU approves alliance of American Airlines, British Airways and Iberia
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