Art © TWC 2009

Lorsque American Airlines (AA) et British Airways (BA) ont déposé une demande d’immunité antitrust en 2002, l’espoir était mince qu’un accord puisse être conclu avec les autorités chargées de la réglementation aux USA et dans l’Union Européenne. Les nouveaux venus sur le marché UE-USA étaient interdits, et AA et BA étaient des sociétés concurrentes approchant un monopole effectif détenu sur les départs quotidiens entre Heathrow et les USA.

Au bout du compte, les passagers ont désormais un choix plus vaste que jamais de transporteurs, de niveaux de services et de nouvelles destinations sans escale. En conséquence, les clients des deux côtés de l’Atlantique devraient inciter leurs législateurs à approuver la demande d’immunité d’AA/BA.

Malgré ces changements concurrentiels, certains groupes de consommateurs et des concurrents tels que Virgin Atlantic (VA) se sont opposés avec véhémence à cette proposition. Virgin Atlantic prétend que si l’accord devait être approuvé, AA/BA auraient une mainmise sur les services Londres Heathrow-US, et pourraient suffisamment coordonner leurs plages horaires pour augmenter la demande, et donc les tarifs. Alors que l’immunité antitrust aurait, sans aucun doute, un certain impact sur la fréquence et les horaires que coordonneraient les deux transporteurs, au bout du compte, la demande des consommateurs et la pression des nouveaux concurrents permettrait de surveiller les tarifs et de fournir un choix alternatif de compagnies aériennes aux passagers à une échelle auparavant indisponible.

Depuis la mise en œuvre de l’accord Open Skies, nous avons vu de nombreuses compagnies telles qu’Air France, Delta, US Airways et Northwest commencer à défier les compagnies établies sur le marché Heathrow-USA. Alors que le ralentissement économique a temporairement réduit les efforts d’expansion de certaines compagnies comme Air France, ils sont l’exemple d’une concurrence saine découlant des marchés ouverts.

De plus, il existe un sérieux candidat potentiel sur le marché Londres-USA. BMI (BD) a redoré son blason auprès des passagers professionnels durant les derniers mois. En tant que seconde compagnie aérienne d’Heathrow, établir des liaisons directes vers les USA serait-il si lointain pour elle? La récente augmentation par Lufthansa de sa participation dans BMI est une autre preuve de la force et de la concurrence émergentes de Star Alliance qui travaille déjà sur le marché d’Heathrow en bénéficiant de l’immunité antitrust.

Ces dernières années ont également vu d’importantes expérimentations avec les liaisons transatlantiques entre d’autres aéroports londoniens tels Stansted et Luton, avec des résultats mitigés. Un changement tout à fait radical s’est produit à Gatwick lorsque des compagnies ont transféré, sous la forme d’un quasi-exode, leurs opérations de Gatwick à Heathrow peu après la mise en place de l’accord final sur Open Skies. Virgin Atlantic a également une opportunité unique de redéfinir l’expérience aéroportuaire Londres-USA puisqu’elle dirige un consortium qui propose de racheter l’aéroport de Gatwick à la British Aviation Authority (BAA). Si son offre est acceptée, la société aura l’occasion de faire préférer un autre aéroport qu’Heathrow à ses clients, grâce à une expérience aéroportuaire supérieure.

Globalement, nous pensons qu’il n’existe aucun argument convaincant pour s’opposer à la demande d’AA/BA pour la même immunité qui a déjà été accordée à de nombreuses autres alliances dans l’UE et aux USA. Nous pensons que son approbation permettra aux alliances des compagnies aériennes de lutter à armes égales, augmentera les pressions et au bout du compte, bénéficiera aux consommateurs.

Clause de non-responsabilité : les opinions exprimées reposent sur l’analyse continue de l’équipe de TWC et sont soumises à nos Conditions d’utilisation. L’auteur ne possède pas de contrats actifs, d’actions ou de titres dans l’une des sociétés mentionnées dans ce rapport au moment de la rédaction de cet article.  Cette analyse/ce rapport sont uniquement rédigés à titre informatif.

"Does anyone here object to his union?" Queue Congressman Orbester (Pic copyright of TWC 2009)

After lobbying from Alaska Air and other labour groups, it would appear that Congressman Oberstar (Democratic Congressman and Chairman of the House Transportation Committee) has requested that U. S. Transportation Secretary LaHood look into the “nationality” of Virgin America for potential violations of U.S. foreign ownership rules.

We find this ironic, given today’s news from the G20 summit in our own hometown.  While protesters went about their business in the Square Mile, down in the Docklands something truly important was happening.  In the final communiqué the G20 found common ground, in principle, against trade barriers.  We predict that we will see implicit ripple effects onto Open Skies Mark II as a result.  We also think that a US Congressman would be more concerned with American jobs being lost vs. the blatant protectionist politics and his obsession with HR 831.

Ironically, the Virgin issue has very little to do with HR831, as it is a stand-along player that Oberstar is righteously trying to protect against what his calls ‘whiny’ legacy airlines.

Perhaps we should all think this through to its logical conclusion?  In our opinion both Oberstar is missing the point.   We are talking about American jobs here, and it is my sincere hope that the legislators of both Houses from California and New York will be so kind as to remind the Congressman of that pertinent fact.  

In addition, is it possible that while the investors may have indeed decided to extract some of their remaining investment from this venture, that perhaps they still retain critical voting rights as part of the contract’s structure?   I am no lawyer, but what I do know is this: The Virgin Group and its CEO are both known quantities to me personally, and I would not underestimate how particularly adept they are at doing their jobs.

While we understand the position of Alaska Air, we are a bit more puzzled by the reaction of some of the labour unions who are exercising their muscle on this issue as well.    While I appreciate that times are tough, but I have to wonder if ALPA be singing a different tune if Virgin America’s pilots were dues paying members?

Oberstar has missed the fundamentals.  We live in a global economy now, and airlines are on the front line.  They are our physical lifeline to the new global economy, a tangible manifestation of the reality of international commerce, trade, and leisure.  

At TWC we will continue to use our resources to highlight what we interpret as the dangerous brand of political protectionism practiced by the Chairman of the US House Transportation Committee.

Disclaimer:  The author holds no current positions or active contracts with any of the carriers mentioned in this blog.

BLOGROLL ON THIS TOPIC

http://eyeonlaaviation.blogspot.com/2009/04/oberstar-claims-vx-may-be-violating.html

www.planebusiness.com (Don’t subscribe and you are in the aviation business?  You need to!)

Executive Summary

• There will be wave of additional industry consolidation in Europe over the next year
• Pension Underfunding is playing a key issue in failed merger talks from BA/Iberia to even BA/Qantas.  While it is talked about as “valuation issues”, one of the largest is pensions and benefits
• While the EU Competition Commission is not likely to have changed its view on EI/FR, another suitor could put together a new bit Irish and EU regulatory backing
• Failed startup carriers like Silverjet and Eos may have been underfunded, but they avoided some of the legacy cost issues now plaguing the industry.
• BA needs to gain approval for its Merger with American Airlines- which we support fully.  That union is becoming even more important as the economic climates- and cargo and passenger numbers fall
• There are parallel lessons for the airline and auto industry when it comes to organized labour.

To say that Aer Lingus has been on defense as of late is an understatement.   I am personally impressed by both the airlines management and Irish Governments handling of the Ryanair bids, with the exception of the golden parachute for senior execs, that was later retracted.   Today there is even rumour of fresh takeover talks from the Merrion Stockbrokers team.  

 No potental takeover bid can be successful until the potential suitor has  an answer for what will happen with under-funded pensions and long-term labour contracts.  Until this happens nearly all  airline merger talks will end in tears.

In the case of Aer Lingus, the Irish State should not be left holding the bag for the debts, Alitalia style. Nor should the good people of Ireland need to face up to what US Authorities did with United Airlines in 2005, where the Federal Pension Guaranty Corp took over the airlines pensions for an exchange in a stake in the new United Airlines. 

There are some also some new harsh realities out there that airline labour needs to face up to.   No where is this more true than at Air France where pilots routinely appear to strike due to minute changes in retirement dates and work rules.

This is a now all too recurring theme in the airline sector, as earlier this week BA was said to have been valued below fellow oneworld partner Iberia.   One of the key reasons for this financial faux-pas is that BA owes its pension fund a good deal of cash and is not current with contributions.   While Walsh is out there claiming the any deal that does not value BA above Iberia is “not acceptable” to BA shareholders- why are those same shareholders not demanding answers on the pension underfunding?

 I am no fan of these pension obligations, and were I a shareholder I would be asking management some serious questions about how they are going to solve this pension shortfall, or ultimately it is not the shareholder, but rather the EU taxpayers that will start footing the bill.

 One of the reasons that we as consumers should be sad to see some airlines like Silverjet, Eos, and Sterling go is that that they knew the secret: don’t create a labour contract or pension plan that you cannot afford.  Instead, be good to your employees, and create an innovative, agile, and fun environment in which to work.  We feel that Virgin may well have the right balance here at the moment.  In addition, American Airlines has managed to create through shared-sacrifice a stronger relationship with its organized labour, at the cost of ousting of their former CEO (Bob Crandall) in order to regain credibility.     

This bring me back to a key point that I plan to continue supporting which is the AA/BA anti-trust application should be given fast track approval by the EU Competition Commission, as they currently are in a position to make a merger work.   They have the cash, the teams, and will be able to get concessions to harmonise workforce rules.  These are going to be keys to long-term viability.   Other truly viable applications should also be given the same treatment.   Ryanair and their bid were unrealistic and bad for EU consumers. 

 For more information, please visit us at www.twclimited.com

THE ISSUE – A FAILED BID FOR ANTITRUST IMMUNITY

In 2002, American Airlines (AA) and British Airways (BA) filed for antitrust immunity. Had their request been approved, they would have been free to work together to set more competitive flight schedules and fares. Unfortunately for the two airlines, no agreement has yet been reached with the US and EU regulatory authorities.

The question is: are consumers losing out as a result?

THE BACKGROUND – A LOT HAS CHANGED SINCE 2002

Back in 2002, the landscape of the EU-US airline market was very different. New entrants to the market were prohibited, and AA and BA practically had a monopoly hold on daily departures between London Heathrow and the US.

The new EU-US Open Skies accord has changed all that. Since the first phase of this agreement was reached in 2007, the doors have been opened for new market entrants to fundamentally change the competitive landscape at Heathrow and other European airports. Airlines such as Air France, Delta, US Airways and Northwest have begun to challenge established Heathrow-US carriers: an example of the healthy competition that comes from open markets.

ARGUMENTS FOR – MORE CHOICE FOR CONSUMERS

Ultimately, passengers now have a wider choice of carriers, service levels and new non-stop destinations than ever before. 

Plus, there is now a serious potential contender in the London-US market. Heathrow’s second largest airline BMI has been raising its profile to business travellers over the past few months, while Lufthansa has recently increased its stake in the airline.  So, could direct links to the US be far off for BMI, giving consumers even more choice when it comes to transatlantic flights?

Notably, both BMI and Lufthansa are members of the Star Alliance, which already operates with antitrust immunity and as a result is growing stronger and more competitive by the day. In all this, the consumer is once again the winner.

ARGUMENTS AGAINST – THE IMPACT ON GATWICK AND COULD BA/AA ‘MONOPOLY’ INFLATE FARES?

The past few years have seen other London airports such as Stansted and Luton experiment with transatlantic links – with mixed results. And in the wake of Open Skies, a near ‘mass Exodus’ of carriers shifting their operations to Heathrow has led to radical changes at Gatwick. These changes could, in fact, continue – but in new direction. If Virgin Atlantic wins its bid to buy the airport from the British Aviation Authority, it could potentially shift consumer preference away from Heathrow with a superior airport experience.

Unsurprisingly, it is competitors such as Virgin Atlantic that most strongly oppose the BA/AA bid for antitrust immunity. Along with several consumer groups, Virgin Atlantic claims that the result would be a ‘stranglehold’ on Heathrow-US services,  which would enable BA and AA to coordinate schedules enough to inflate demand and therefore fares.

OUR CONCLUSION – AA/BA ANTITRUST IMMUNITY MAKES SENSE

While antitrust immunity could arguably have some impact on frequency and schedules as BA and AA coordinate their services, consumer demand and pressure from new competitors will help keep fares in check. Most importantly, it will give passengers an alternative choice of carriers on a scale not previously available.

So, overall, we feel there is no cogent argument for opposing the AA/BA request for antitrust immunity: a request that has been granted to many other alliances in Europe and the US. Its approval can only help to level the playing field between airline alliances, increase competitive pressures – and ultimately benefit consumers.

It is therefore in all our interests to urge lawmakers to approve the BA/AA application sooner rather than later.