BA/AA alliance would stifle competition and force up fares
Virgin Atlantic warned that
BA’s third attempt to tie-up with
American Airlines would create a
monster monopoly that would push up ticket prices and substantially reduce competition on the busiest air corridor in the world.
BA announced earlier that the three airlines – BA, AA and Iberia – would apply for permission from regulators in Europe and the US to fix prices and capacity on transatlantic routes, activities which would otherwise be illegal.
Sir
Richard Branson, President of Virgin Atlantic, commented:
“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
“BA argues that the aviation landscape has changed since their last failed application – I disagree, nothing has changed. Open Skies has not delivered the greater competition that was promised because Heathrow is full. BA/AA and Iberia would still be unacceptably dominant, with nearly half of all of the slots at Heathrow, leaving competitors powerless to take them on.
“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.”
Virgin Atlantic set out its specific concerns:
- BA/AA will form a dominant force in transatlantic markets, with nearly 60% of all Heathrow - US frequencies. In 2007 62% of passengers traveling between Heathrow and the US travelled on BA or AA, according to the US Department of Transport. Existing competitors will struggle to compete and new entrants will be deterred.
- BA/AA will have 63% of capacity between Heathrow and New York JFK, 79% between Heathrow and Boston and 75% between Heathrow and Miami. The alliance would have dominant market shares on other Heathrow routes, 66% to Chicago and 49% to Los Angeles, and would create a pure monopoly on the route from Heathrow to Dallas Fort Worth. In each case customer choice is drastically reduced or eliminated and higher fares will follow.
- BA and AA have over 200,000 slots a year at London Heathrow. Virgin Atlantic has 17,000. Heathrow is full and no other carrier can replicate BA/AA’s network. BA/AA won’t face enough competition on its huge network to stop it raising prices to consumers.
BA/AA and Iberia – The facts
History
BA and AA have tried twice before to form a transatlantic alliance (in 1997 and 2001). Competition authorities raised concerns about the anti-competitive nature of the potential tie-up. Nothing has changed since the last application for anti-trust immunity.
Slot dominance
- Heathrow is full. BA and AA have over 200,000 slots a year at London Heathrow.
- Virgin Atlantic has 17,000. No other carrier can replicate BA/AA’s network.
- BA holds 42% of slots at Heathrow, with AA holding 3% and Iberia holding 2%. Collectively they would hold 46% compared to Virgin Atlantic’s 3% holding.
- BA and AA hold 49% of peak time arrival slots at Heathrow, giving them a further advantage with time-sensitive and corporate travellers.
Market share dominance
- In 2007 62% of passengers travelling between Heathrow and the US travelled on BA or AA, according to the US Department of Transport.
- On Heathrow-US routes, BA has 40% of capacity and AA has 17% - together they represent 57% of Heathrow-US capacity.
- A BA/AA alliance would have a dominant market share on a number of Heathrow – US routes.
Route
|
BA/AA Capacity Share (%) |
| Heathrow – New York JFK |
63 |
| Heathrow – Chicago |
66 |
| Heathrow – Boston |
79 |
| Heathrow - Miami |
75 |
| Heathrow - LA |
49 |
| Heathrow - Dallas Fort Worth |
100 |
- A BA/AA alliance creates a monopoly on the Heathrow – Dallas Fort Worth route.
Frequency dominance
- BA/AA would have nearly 60% of all Heathrow - US frequencies.
- BA/AA would have 13 LHR-JFK daily flights, 8 LHR-Chicago, 5 LHR-Los Angeles. 3 and 5 LHR – Boston.
Open Skies – a red herring
- An Open Skies agreement was a prerequisite of any previous BA/AA approval.
- Since 2001 nothing has changed, even with Open Skies – BA/AA still has around 60% of Heathrow - US frequency share.
- A BA/AA alliance would mean any opportunities presented by Open Skies could be lost before they have been realised.
- In practice Open Skies has not led to a significant increase in the degree of competition from the preferred London airport, Heathrow, to US gateways.
- Although Open Skies has marginally increased Heathrow-US frequency, this should not be exaggerated as a genuine increase in competition.
The importance of Heathrow
- Passengers travelling from UK-US make up 37% of all EU-US passengers, compared to 19% Germany-US.
- Passengers travelling from Heathrow make up the largest flow across the Atlantic from Europe accounting for 22% of all Europe-US passengers compared with just 13% from Frankfurt; therefore Heathrow US routes need to remain competitive.
- BA/AA would overlap and therefore reduce competition on the top three Heathrow-US routes, routes which also represent the top three EU-US routes by capacity
Stranglehold on competition
- Existing competitors will struggle to compete and new entrants will be deterred.
- BA/AA won’t face enough competition on its huge network to stop it raising prices to consumers.
The effect on the consumer
- The BA/AA alliance would have dominant market shares on many key Heathrow routes, in each case drastically reducing or eliminating choice, deterring competition and resulting in higher fares.
Vicky Karantzavelou
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Monday, August 18, 2008