BA, American and Iberia sign deal

Antitrust immunity allows airlines to effectively merge parts of their operations, share sensitive market data and jointly schedule and set their prices on routes covered by the grant of immunity. For example, because Air France and Delta have immunity, they can decide to fly an Air France flight from New York's John F. Kennedy Airport to Paris at, say, 4 p.m. each day, while Delta flies the same route at 5:30 p.m., instead of both flying at 4:30 p.m. They operate the service jointly, share the costs and revenues from the two flights based on a formula reflecting each carrier's investment in the joint operation.

That arrangement eliminates competition between the two allied carriers and allows them to reduce operating costs and, in theory, increase revenues through market efficiency. Thus, to assure continued market competition, regulators in both Europe and the USA have shifted in recent years to fostering competition between airline alliances rather than between individual carriers. That's another reason why Arpey says he expects regulators to approve American and BA's third request for antitrust immunity.

"Foreign ownership laws prevent true international consolidation, and you've got labor concerns impacting the argument for cross-border mergers, as well," he says. "So the regulators have recognized that inter-alliance competition is good for consumers. That's where the industry is evolving. So, I think for competitive reasons, they're going to want to put us on a competitive service level with Star and SkyTeam."

American and BA currently compete with each other on most routes between the USA and Britain, despite having immunity for some trans-Atlantic operations on routes where there is no competition.

Even after receiving antitrust immunity, American and BA's share of the USA-Heathrow market (based on the scheduled number of seats) "will be less than Star's seat share in the US-Frankfurt market by a wide margin, and less than SkyTeam's US-Paris and US-Amsterdam markets," Arpey says. In the USA-Heathrow market, oneworld carriers including American and BA would have about a 52% seat share.

But Heathrow is a significantly busier airport than any of the other major European hubs, and it is preferred by high-fare paying business travelers, primarily because of London's status as global financial center. So BA and American are certain to face stiff opposition from at least some rival carriers, and from politicians aligned with those other carriers.

One opponent, Sir Richard Branson, chairman of BA's arch-rival Virgin Atlantic, launched a pre-emptive attack last week with public statements opposing the American and BA's expected request for immunity. Branson also wrote both U.S. presidential candidates to complain about a potential BA-American immunized linkup presuming that the matter ultimately will be in effect next spring, when one or the other is in the White House.

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