American and British Airways Finally Receive Alliance Approval From the US (Tentatively)

About 10 minutes after the Wright Brothers put their first airplane into the air, American and British Airways applied for blanket codesharing and antitrust immunity. More than 100 years later, their wish has finally been granted, at least by the US authorities. Yes, they have to give up some slots, but it’s a very minor number. I would be very happy if I were them.

AA & BA Building Alliance with Wright Brothers

Assuming this ruling becomes final and the EU goes along with it, American and British Airways frequent fliers should be able to burn their own miles on the other airlines’ airplanes between the US and Europe. You will also start to see American Airlines codes popping up on British Airways transatlantic flights and vice versa. Oh yeah, and it’s not just these two. BA’s darling Iberia, Royal Jordanian, and Finnair are a part of this as well, but they were never the hold-up. It was always all about access to Heathrow.

So what made it go through this time when it’s failed so many times in the past? Well, the open skies agreement between the US and the EU played a big part. Without it, the DOT said the outcome would likely have been different. With a new round of talks on opening the skies even further about to begin, I imagine the EU will be very conscious about the connection here when they decide to rule.

The order itself was 44 pages long, but it really could have been said in one page. The DOT decided that the harm to competition wasn’t enough to overcome the consumer benefits . . . for the most part. (Gee, strange that the exact same body felt differently about the US Airways/Delta slot swap ruling earlier this week.)

The one market that was singled out by the DOT was Boston to London/Heathrow. (The DOT stated that Heathrow is, in its eyes, a separate market from the other airports in London. That was one of the only things that they and Virgin Atlantic agreed on.) The Boston to London market is large and will effectively go down from 3 competitors to 2 when BA and AA are considered one. So what will the DOT do about it? They’re requiring BA and AA to give up some Heathrow slots.

The ruling actually will require 4 slot pairs to be divested. That’s it. Yes, Delta has to give up 14 in Washington, but these two only have to give up 4. (I know they’re different issues completely, but still, the juxtaposition is there.) Of those 4 pairs, two must be dedicated to Boston – Heathrow flights. The other two can be used from any US city to Heathrow.

Keep in mind, BA and AA don’t have to give up slots they currently use for transatlantic flights. They can take any slots as long as they are at times that are appropriate for transatlantic flying. And they don’t even have to sell the slots. They can just lease them for a reasonable amount and actually earn money on them. This would require leasing them for only 10 years and then BA and AA could use them again if they wanted.

Now, who the heck is going to want these slots? In Boston, I can only think Delta would be interested. But will Delta want to fly that twice a day? I don’t think the market is big enough for them. And who will want the other two? It seems to me that the US carriers who want to fly to Heathrow already fly there with the frequency they want. Maybe since these will be cheap enough, some other options will pop up on the radar screen, but I’m just a little skeptical. If nobody wants them, then that’s ok. BA/AA just have to make sure they’re available if anyone wants them during the next ten years.

As you might imagine, Virgin’s Richard Branson is just pissed off about this. He has by far been the most vocal opponent since his Virgin Atlantic subsidiary stands to lose the most, in his eyes. Now he has just 45 days to somehow convince the DOT that it’s wrong. I don’t think it’s going to happen. Maybe he’ll have better luck with the EU.

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