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The UK’s Competition & Markets Authority has opened a consultation on proposals by American Airlines and British Airways to address competition concerns about their transatlantic joint business.
If accepted American and BA would have to make slots available to rival airlines on routes from London to Boston, Dallas and Miami.
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American Airlines & BA’s Transatlantic Joint Business
Since 2010, American Airlines and British Airways have operated a transatlantic joint business on routes between Europe and North America.
This allows the two airlines to effectively operate as one airline and co-ordinate schedules and fares on transatlantic routes.
The joint business is seen as advantageous because it allows American and BA to offer high frequencies on major routes, which is particularly attractive to business travellers. More marginal routes can be supported by access to each other’s corporate and frequent flyers.
Finnair and Iberia are also part of the joint business. Aer Lingus is a signatory to the business and is due to join at some point in the future.
Regulatory approval was granted by the European Commission and US Department of Transportation on American and BA’s third attempt. This was in spite of fierce opposition from Virgin Atlantic, which has subsequently joined its own joint business with Delta and Air France-KLM. The European Commission’s original decision can be viewed here.
As a condition of regulatory approval, American and BA had to make slots available to new entrants on five routes from London to Boston, Chicago, Dallas, Miami and New York. These “commitments” were for a period ten years.
These slots have been taken up by Delta, Norwegian and Virgin Atlantic. One slot acquired by Delta, initially for London Heathrow to Philadelphia, is subject to litigation by American Airlines.
The Competition & Markets Authority Review
In 2018, the Competition & Markets Authority opened up a review of the joint-business.
This was in light of the expiry of the above commitments and the UK’s then planned departure from the European Union.
The review has taken considerably longer than expected. This, given with the fact that the CMA has adopted a very interventionist approach in cases outside of aviation, has caused speculation that the CMA would take a very tough line.
It is also a given that there will have been intense lobbying from rival airlines against the joint business, particularly from JetBlue which had planned to launch flights from London to Boston and New York JFK.
The CMA has published its full findings. It has identified competition concerns on five routes from London to Boston, Chicago, Dallas, Miami and Philadelphia.
American and BA have a monopoly on non-stop routes from London to Dallas and Philadelphia and a high frequency advantage on Boston and Miami.
Proposed Resolutions
American Airlines and BA have proposed the following resolutions to the CMA:
Releasing additional take-off and landing slots at London Heathrow or Gatwick airports to enable competitors to begin or increase non-stop flights between London and Boston, Dallas and Miami.
Measures to support competing services on these routes as well as on the London to Chicago and London to Philadelphia routes, including access to connecting passengers on preferential terms.
For each of Boston, Dallas and Miami, one slot would be released for a new entrant.
The CMA does not propose that slots are released for Chicago as United Airlines offers a high frequency of service on this route. Philadelphia is considered a “thin” route which is unlikely to attract a new entrant.
As is standard practice, there are conditions attached to the release of slots which would be overseen by an independent trustee.
The CMA is to consult on these proposals. The consultation will close at 16:00 BST on 4 June 2020. A decision will be made in July 2020 on whether to accept AA and BA’s proposals. Details of the consultation can be viewed here.
The CMA has noted that COVID-19 could have significant long-term impacts on the airline industry and the above proposals may not address competition concerns arising from this. It reserves the right to propose further changes.
Initial Thoughts
At first sight, this seems to be a relatively good outcome for American and BA.
The CMA has recognised the joint business has helped support the launch of new routes and the CMA is minded to allow it to continue.
The proposed resolutions, which involve releasing up to three daily slot pairs, are palatable to American and BA. The worst outcome would have been the CMA either proposing the joint-business is disbanded entirely or that they have to carve out certain routes.
Somewhat ironically, it is now in AA and BA’s interests for Virgin Atlantic to stay in business as the failure of Virgin would inevitably lead to much tougher measures by the CMA.
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