Summary
Comments by British Airways CEO Willie Walsh underscore the real threat to consumer choice – a duopoly by the Star and Skyteam Alliances – sanctioned by the very institutions that have stifled the oneworld alliance in the past.
Analysis
Willie Walsh may not have the backing of his peer airline executives in the industry when it comes to the oft, but ill-fated alliance with American Airlines, but Walsh was absolutely right on the money when he outlined the dominance of the rival Star and Skyteam Alliances.
"If Star and Skyteam remain the only immunized alliances across the Atlantic, we could end up with an untouchable duopoly," said Walsh.
Since the EU-US Open Skies pact in force since last spring, both the Star and Skyteam Alliances, their members and partners have had numerous anti-trust immunity applications approved, most notably that of Continental Airlines joining the Star Alliance and code-sharing on United Airlines’ routes.
Without beating a dead horse, it is a stark reminder that the most vocal critic of the British Airways-American Airlines-Iberia tie-up is Virgin Atlantic. What is surprising is the utter silence from Virgin in relation to the potential duopoly outlined by Walsh early last week.
If it’s about consumer choice, then restricting anti-trust approval to carriers whose dominance lies outside of London Heathrow yet still pose a significant threat by diverting traffic away from the UK to the EU mainland by proxy, then even at the most basic of competitive levels, not approving the oneworld alliance deal will raise serious questions about the ability of both the US Department of Transport (DoT) and Department of Justice (DoJ) to rule equitably.
On Heathrow, the issue of slots is one that comes up time and again. Aside from the usual nonsense that buying slots still requires ancillary services at the airport (which everyone knows when you acquire slots), the real issue is that of wanting to buy them in the first place.
And on this very point, Walsh hit the nail on the head again.
"Slots at Heathrow are available - just ask the Star alliance," he said. You could also ask the likes of
Emirates, Qatar Airways and Etihad Airways (the latter of which isn’t even a decade old but has a growth rate of some 36% YoY – contrast that to Virgin Atlantic…).
With a ruling a little under two weeks away, a third refusal of this pact will almost certainly mean that inorganic growth will be the only way to solidify the oneworld alliance existing route network and also force out potential suitors to Japan Airlines by way of equity stakes amongst the existing oneworld partners.
Just as British Airways and American Airlines may have dominance on a handful of key routes from the UK-US, we have to remember that both the DoT and DoJ have given their blessings to far bigger applications from the Star and Skyteam Alliances in the form of uncontested monopolies between the US-France and US-German routes.
Even if the British Airways-American Airlines-Iberia tie-up gets the nod of approval, there is still plenty of competition between the UK and US. United Airlines, Continental Airlines, Delta Airlines, US Airways, Virgin Atlantic and even Pakistan International Airlines and others ply their trade on this hotly sought after market. Lest some forget, Singapore Airlines has for years wanted to join in the fun of trans-Atlantic travel, although its ambitions have been thwarted by the Virgin Atlantic stake that it cannot offload.
The bottom line is that if the ruling for this pact is a negative one, then all prior pacts approved for the Star and Skyteam Alliances should also be revoked until a clear, full and uniform investigation into their applications take place.
It is simply not judicious to retrospectively investigate the Star and Skyteam Alliances while not affording the same the oneworld partners.
If that’s the position that emerges on October 31st, then British Airways and American Airlines are within their right to do whatever is necessary to destroy compliance for Phase 2 of the EU-US Open Skies deal and throttle Heathrow slots to the competitive disadvantage of the few favoured airlines as seen through the DoT and DoJ’s eyes.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
