AMR Corp.'s American Airlines and British Airways PLC on Saturday received tentative approval from U.S. regulators to expand their trans-Atlantic alliance in return for giving up some slots at London's congested Heathrow Airport. The move could act as a catalyst for ongoing negotiations between the U.S. and the European Union to deregulate trans-Atlantic air travel. Representatives of two sides meet in Madrid Monday with the aim of deepening a U.S.-EU pact from 2008 that removed many restrictions on airline marketing and operations between the world's two largest aviation markets.
The U.S.-EU "open skies" pact from 2008 opened the door to Saturday's decision by the U.S. Department of Transportation by boosting competition in popular markets. The DOT's ruling, if finalized, would allow the two giant carriers and their partners in the Oneworld alliance to cooperate in ways normally forbidden under antitrust laws as collusion, such as coordinating fares and schedules. A similar review by EU competition authorities is still under way. The DOT's preliminary ruling backed American and BA in their decade-long quest for antitrust immunity. Rival airlines in the two other global airline alliances, Star and SkyTeam, already have antitrust immunity for trans-Atlantic joint ventures of the sort American and BA proposed. The pair twice before applied for the waiver but faced compliance terms that they deemed unacceptable and so dropped the bids.
The pending waiver gives Oneworld its second boost this month, after Japan Airlines Corp. opted to remain a member rather than defect to SkyTeam. BA separately hopes soon to announce final details of its planned merger with Spain's Iberia Aereas de Espana SA, which is included in the antitrust immunity application. Oneworld is the smallest of the three alliances and risked being marginalized if it lost JAL, a key Asian partner, or was unable to match rivals on trans-Atlantic routes. The DOT approval, which is subject to a 90-day comment period, would give Oneworld parity with the flexibility already exploited by Air France-KLM SA and Delta Air Lines Inc. in SkyTeam; and carriers including UAL Corp.'s United Airlines, Continental Airlines Inc. and Germany's Deutsche Lufthansa AG in Star Alliance.
The DOT's requirement that Oneworld give up four daily pairs of Heathrow slots is far less onerous than the 16 it proposed in 2002 in their last application, reflecting how the open skies treaty has helped open the trans-Atlantic market and a relative lack of opposition. Britain's Virgin Atlantic Airways Ltd. has been the most vocal critic of the proposed linkup, arguing that granting immunity would provide Oneworld with an anticompetitive advantage on trans-Atlantic routes from the U.K. Virgin president Richard Branson in a statement described the draft conditions imposed by the DOT as "a complete joke" and urged the EU to impose tougher ones to protect consumers as it reviews the application. Most other big U.S. and EU airlines voiced far less opposition than they had to the pair's previous applications because potentially critical competitors are now themselves in alliances with similar immunity.
If American and BA link up, Virgin will be isolated as the only major carrier based at London's crowded Heathrow Airport that isn't in a global alliance. Some industry officials say permission for American and BA to tighten their relations could prompt Virgin to join an alliance or seek a merger. Virgin is 49% owned by Singapore Airlines, a founding member of Star Alliance. BA, American and their partners said they would "review the DOT's tentative order and will respond according to the timeframe established for comments." Two other Oneworld members, Finnair and Royal Jordanian Airlines, are also part of the agreement.
European regulators are still examining the Oneworld proposal after an initial finding that it could harm competition on some routes unless the airlines made concessions. However, EU officials have been coordinating closely with their counterparts in Washington. People familiar with the process said it is highly unlikely the two sides would reach dramatically different conclusions, although details of the decisions may differ. The timing of an EU decision remains unclear. In its ruling, the DOT agreed with Oneworld's argument that their enhanced pact would boost competition against Star and SkyTeam members, lowering fares and expanding schedules. Airlines are increasingly challenging rivals' markets with the alliances, which made competition among airlines more global. Industry officials consider the alliances as proxies for cross-border mergers, which are prohibited in most countries. The EU has been arguing in its ongoing aviation negotiations with the U.S. that each side should open its airline market to investment from the other, but many key U.S. politicians have opposed the idea.
If American and BA are allowed to get closer, industry executives in the U.S. and EU may be tempted to gain competitive advantage by boosting cooperation further through some form of merger. United Airlines Chairman and Chief Executive Glenn Tilton in London last week said he endorsed the EU's efforts and said the U.S. airline market should be opened to more foreign investment. Had the DOT blocked plans by American and BA, many industry officials feared it would impede U.S.-EU negotiations because the carriers had indicated they would oppose continuing open skies talks if they are not granted the same immunity as rivals.