Oneworld carriers wait on US antitrust

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Oneworld carriers seeking approval for an immunised transatlantic joint venture are waiting for a determination from the US Department of Transportation if anticompetitive concerns raised by the country's Justice Department are justified.

American, British Airways and Iberia face the challenge of winning blanket immunity from the DOT as the Justice Department under the administration of President Barack Obama has a clear aversion to immunised relationships across all business sectors, says MIT airline researcher William Swelbar. Justice raised its specific concerns to DOT, which ultimately grants authority, almost two months after the deadline to submit comments passed.

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The concerns stem from what Justice perceives as compromised competition on six transatlantic markets from London Heathrow to Boston, Chicago, Dallas, Miami and New York; and Miami-Madrid. It notes in Dallas-London and Madrid-Miami, the oneworld partners offer the only nonstop service. The agency believes fares would rise in all those markets once immunity is granted and competition is eliminated.

Oneworld though argues the methods used by Justice to determine fares would rise are flawed. They say Justice provides no statistically significant evidence to support a burden of proving potential harm "on any route other than Dallas/Fort Worth-London, a small local origin and destination market that enjoys its current level of service precisely because of the alliance between American and British Airways".

Key European Gateway

While Swelbar of MIT acknowledges that London is a large origin and destination market, it is the key European gateway in this particular tie-up, and in the highly competitive transatlantic marketplace each of the immunised joint ventures of SkyTeam and Star features a large hub operation in Europe.

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The suggestions by Justice to DOT to remedy its concerns are slot divestitures and carve outs, which are routes excluded from immunity. Conditions requiring them to relinquish hundreds of Heathrow slots was a driver in American/BA withdrawing their antitrust application in 2002, and both are adamant that since the first phase of EU-US Open Skies in March 2008, access to Heathrow is not a key factor in a decision to grant antitrust. Another remedy suggested by Justice of not earmarking divested slots would actually jeopardise competition, say the carriers. In that scenario Delta could take a Boston-Heathrow slot and use it at Detroit, where it faces no nonstop competition.

DOT's adherence to the remedies offered by Justice remains uncertain. In the proceedings that granted Star carriers Air Canada, Continental, Lufthansa and United transatlantic immunity, DOT ultimately required some carve outs after Justice expressed similar competitive concerns.

Swelbar says in this particular case, he would be surprised if DOT ignores all the concerns raised by Justice. Yet it is tough to determine if those concerns are justified. There are numerous competitive opportunities in the US-London market. "Everyone has had their hand in that pie," he says. As DOT continues to deliberate, carriers in SkyTeam and Star have secured anti-trust approvals and are developing joint ventures and gaining a competitive advantage, says Swelbar. "The weight of getting immunity has got to be fairly heavy on American and BA right now."