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BTC, Virgin Atlantic's Branson Disagree on DOT Approval of AA/BA Deal

May 14, 2009 By: George Dooley


The Business Travel Coalition (BTC) has filed comments in support of the application of British Airways, American Airlines, Iberia, Finnair and Royal Jordanian before the Department of Transportation (DOT) for antitrust immunity for their oneworld alliance. Meanwhile, Sir Richard Branson, CEO of Virgin Atlantic, has some opposing comments of his own.

BTC Support

BTC stressed that corporate buyers of air transportation services in North America and Europe require a third, competitively viable alliance alternative. An immunized oneworld would level the playing field (against Star and SkyTeam alliances) and considerably strengthen network competition at a critical time for consumers as the global airline industry is consolidating rapidly, the BTC said.

The key issue, according to the BTC, is the nearly 20-year government-driven evolution from competition between international airlines to competition among global, networked and immunized alliances that is almost complete.

“The U.S. policy toward immunized alliances, designed to liberalize markets and provide airlines with opportunities to efficiently expand services, was formulated in a global context where, then and now, true mergers and acquisitions are not options," the BTC said in its comments. "Advocates of the alliance approach logically and factually argue that consumers can benefit as alliances allow airlines to reduce expenses and their overall cost structures.

“An immunized oneworld will make this alliance and British Airways far more competitive with immunized Star and SkyTeam, and by extension, position Heathrow to be more competitive with Charles de Gaulle, Frankfurt and Schiphol [airports]," the BTC continued. "These competing alliances will be forced to respond to a more open and competitive Heathrow by providing corporate buyers with better pricing and improved contract terms and conditions. What’s more, an immunized oneworld will bring pricing discipline to some 31,000 city-pairs between the U.S. and Europe where the combined Star and SkyTeam dominate with 80 percent or more booking market share."

“During the past decade the U.S. and EU have transitioned from a regime of bilateral aviation agreements to an increasingly liberalized environment that has provided small and mid-size communities with greater connectivity to important global business centers and travelers with greater service options," the BTC said. "However, these benefits are overshadowed by the lack of effective competition from a third immunized alliance capable of disciplining pricing across the Star and SkyTeam networks. Every day that goes by in which these competitive imbalances are allowed to exist, consumers and businesses pay higher prices. BTC urges the DOT to approve the oneworld application as a matter of the highest public policy importance.”

Branson Speaks Out Against Merger

Sir Richard Branson, Virgin Atlantic’s founder and CEO, declared war on the proposed merger of British Airways and American Airlines, warning of the disastrous impact on consumers and businesses. Branson said approval would create a “monster monopoly” on key routes between London Heathrow and the U.S.  Comments on the merger are due to DOT the by May 18.

"I'm here today to warn you that if the proposed merger between BA and American Airlines is allowed to go ahead then the result for passengers, employees, communities and for fair and healthy competition, would be disastrous," Branson said at Washington’s National Press Club. "It doesn't make sense to encourage even less competition by allowing dominant carriers to increase their stranglehold by setting prices together and agreeing schedules. I understand that it is tempting for regulators to say: 'We've given dispensation to one alliance, we should do likewise for others' as they've done previously. But they must resist temptation. Each anti-trust application must be considered on its merits and it's clear that the application for a merger between BA and AA must be rejected."

BA and AA, together with their oneworld partners, would hold nearly half of all take-off and landing slots at London Heathrow, Virgin Atlantic argues. “In comparison, Virgin Atlantic has just over 3 percent," Branson said. "BA/AA would also control most of the capacity on key routes such as Heathrow-Boston (80 percent); Heathrow-Miami (73 percent); Heathrow-Chicago O'Hare (64 percent) and Heathrow-New York JFK (64 percent).

"Our arguments are as strong today as they were on the previous two occasions when BA and AA tried to merge," Branson continued. "Their dominance has grown even further between then and now. It appears that eight out of the top 10 U.S. routes to Europe last year were Heathrow routes. That makes Heathrow very special indeed to U.S. consumers. And they're going to be feeling short-changed when suddenly there's a lot less competition and higher prices on the routes to get there.”

"What is before the regulators today is the future of a competitive international aviation industry," Branson continued. "The latest BA/AA application isn't about what the industry wants. It's about what the consumer needs. It should not be decided on emotion or past letters of support. It should be decided on true facts. When this recession is over, we need an industry we can be proud of. An industry that promotes competition, creates jobs and brings real benefits to consumers."

Visit www.virginatlantic.com and www.BusinessTravelCoalition.com.


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