One More Try For Oneworld Partners

Twice now, the two main partners in the oneworld alliance, American Airlines and British Airways, have been stifled in their quest to gain anti-trust immunity from regulators on both sides of the Atlantic.

Having tried and failed in the mid 1990’s to co-ordinate a wide-ranging codeshare, marketing and financially pooled alliance, and again in 2001 with a less ambitious deal to placate authorities, perhaps this third attempt may just be the ticket of success for the two airlines.

In an article by the Financial Times, the desire to move forward with a new application has been somewhat hastened with the recent US-EU Open Skies deal that came into effect in March this year.

“In a post-Open Skies world, with a number of carriers having now secured access to Heathrow, there doesn’t seem to be much of an argument that American and BA ought to be required to give up slots in order to achieve antitrust immunity,” says Tom Horton, American’s chief finance officer.

All images courtesy of oneworld.com (where applicable)

Echoing that sentiment is Andrew Steinberg, a former assistant secretary at the US Department of Transportation who states that “there is a great likelihood that a transaction would be approved, post-Open Skies, and therefore it stands to reason they would be more apt to look at it seriously now.“

“There is evidence that the regulatory landscape is changing,” said Willie Walsh, CEO of British Airways.

In the past, the US had demanded over 200 weekly slots be given up by BA and AA for rival airlines to make inroads into London Heathrow Airport.

Some would argue that the EU and US regulators have been far too lax in allowing deals between various other airlines to proceed without the threat of having to relinquish key slots. Skyteam’s Air France-KLM and Delta Airlines and the Star Alliance consisting of founders United Airlines and Lufthansa have benefited from seeing AA/BA being stopped in their tracks thanks to regulatory red tape. Critics have even labelled such deals as “lop-sided” and accused regulators of being selective in their approach to granting immunity.

One need only look at the four key members of the SkyTeam Alliance (comprising Air France-KLM, Delta Airlines & Northwest Airlines) whom are all seeking antitrust immunity on a four-way alliance deal that would covet a whopping 30% of the North Atlantic market to them.

Image courtesy of Pieter van Marion

Continental Airlines meanwhile, has dropped plans to merge with the ailing United Airlines, and instead found itself warming to joining in on the BA-AA alliance. Whether this is a precursor to the carrier disembarking SkyTeam for oneworld remains to be seen, but its evident that Continental sees itself as being marginalised by the possible tie up between Delta and Northwest Airlines.

With the new Open Skies pact now in operation and full swing, American Airlines and British Airways know that to consolidate their strength at Heathrow Airport will require much more than the opening of the long awaited Terminal 5, much of which has been branded a “national disaster” for the United Kingdom.

The first step in that process will be to ensure that approval for their alliance is granted. In the unlikely even Heathrow Airport is replaced with a new, larger airport for the Metropolitan London area, expansion at Heathrow is a must.

With the likes of Continental, Delta, Northwest and US Airways all ready to tuck into the pie, the only tangible way of ensuring everyone has a decent slice of the action is to increase the size of the playing field.

While that won’t wash very well with residents and environmental campaigners, sources at one airline resident at Heathrow revealed to me that a full length third runway will be built, not the short-length version being proposed at the moment. Only time will tell whether the finances of BAA parent Ferrovial will allow that to happen.

Over the last few weeks, the likes of American Airlines, Continental Airlines and United Airlines have made headlines as they battle with surging fuel costs by slashing capacity and dropping older airplanes from services.

Aside from Continental and a dubious US Airways, virtually none of the so-called legacy carriers have orders in place for new fuel efficient widebody jets. With routes being cut back, the lure of getting into Heathrow and expanding may not be realised any time soon, particularly by those airlines now serving the airport that had sat outside of the original Bermuda agreement.

American Airlines and British Airways may have enjoyed many years of flying across the Atlantic without having to worry about added competition - Open Skies certainly brings a new mix of challenges, but for these two airlines, they hold the key to their success with their partnership at Heathrow Airport - a feat that cannot yet be matched by its competitors.

With this in mind, their codesharing deal may have lagged that of the components of the Star and Skyteam alliances, however, Open Skies is just the incentive both carriers need to consolidate their partnership in the face of new competition, burgeoning oil costs and passenger demand uncertainty.

2 comments June 11th, 2008