American Air Links Up With British Air and Iberia

Aug. 20, 2008
The three carriers have signed a joint business agreement for their US, Mexican, Canadian, European Union, Swiss and Norwegian flights and are planning to expand global cooperation as well

The three carriers have signed a joint business agreement for their US, Mexican, Canadian, European Union, Swiss and Norwegian flights and are planning to expand global cooperation as well. The American Airlines (AA) move follows on the heels of the announcement earlier this month that British Air (BA) and Iberia were in discussions of just such an agreement. Under terms of the agreement, the airlines would share revenues, not profits, and would continue to operate as separate legal entities.

The three have been joined by two other partners in the oneworld alliance, Finnair and Royal Jordanian, in applying for worldwide antitrust immunity from the US Department of Transportation. They have notified European Union regulatory authorities as well. The carriers point out that rival air alliances have received such transatlantic immunity: six SkyTeam members and nine Star Alliance airlines.

Through code sharing the three airlines claim they will have a route network to serve 443 destinations in 106 countries with 6,300 departures each day. "We believe our proposed cooperation is an important step towards ensuring that we can compete effectively with rival alliances and manage through the challenges of record fuel prices and growing economic concerns,” commented Gerard Arpey, chairman and CEO of AMR Corp., the parent of American Airlines. “In addition, we believe we will be more effective competitors with greater ability to invest in our products and services. As a result, this business agreement will create positive outcomes for our customers, shareholders, employees and the communities we serve."

In commenting on the agreement, Sir Richard Branson, president of Virgin Atlantic, said, "Make no mistake—if this monster monopoly is approved it will be third time unlucky for consumers. It will still be bad for passengers, bad for competition, and bad for the UK and US aviation industry. The current economic slowdown is also no justification for agreeing to this alliance. The job of the regulators is to assess the long-term impact of the alliance on competition, not to provide special protection from the immediate challenges of the economic cycle, with which every other airline has to deal. We are not against consolidation but this alliance is on a scale never seen before. BA/AA with Iberia won’t create fair play—so we say no way BA/AA."

The CEO of BA, Willie Walsh, claims, "This strategic relationship strengthens competition by providing consumers with easier journeys to more destinations with better aligned schedules and frequencies. We are applying for EU-US antitrust immunity in a changed regulatory world where London Heathrow is open to any US or EU airline that wants to fly to the United States and where rival alliances have immunity."

The Allied Pilots Association (APA) observes there might be issues that can result from the agreement since it could be in conflict with currently in place collective bargaining agreements with the pilots. The Association represents 12,000 AA pilots. “Although we have not yet seen the text of the joint business agreement, today’s announcement is problematic on several fronts,” noted APA president Captain Lloyd Hill. “For example, the scope clause in our current collective bargaining agreement does not include an exception for a joint business agreement between American Airlines and another airline. Management therefore needs APA’s consent before this joint business agreement can go forward.”

In support of the pact, Iberia chairman and CEO, Fernando Conte, says that, “Customers will benefit the most from this relationship as they will have better connections to more destinations around the world. It will increase competition, as the three global airline alliances will play under the same rules. We are taking a very important step towards consolidation which is necessary in today's aviation industry."

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