Steve Ridgway on BA/AA
British Airways shouldn't be allowed to gang up with American Airlines - it's big enough already on London Heathrow-US routes and it shouldn't be given any special treatment, argues Virgin Atlantic chief executive Steve Ridgway
The competitive environment has changed dramatically since our last application for antitrust immunity with American, therefore Virgin's arguments are stuck in the past, says British Airways chief executive Willie Walsh
British Airways' application for a transatlantic joint business agreement with American Airlines and Iberia takes place in a competitive environment that has changed dramatically in recent years.
When we made previous applications for antitrust immunity in 1996 and 2001, Heathrow was a closed shop. The right to fly from there to the US was restricted to four carriers: BA, American, United and Virgin. The first stage of the European Union-US Open Skies agreement has changed all that.
The Heathrow-US market is now open to any EU or US carrier. In only six months since Open Skies came into effect, five additional airlines have begun transatlantic services and capacity has increased by 22%.
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"BA is now asking regulators to help it effectively merge with AA so it can beat off the downturn"Steve Ridgway |
Heathrow has more competition on US routes than any other European airport - and there is nothing to stop more airlines coming in. Bmi, Heathrow's second largest airline with 11% of the slots, has yet to enter the fray.
The second major change is that our main European competitors Lufthansa and Air France-KLM have been granted antitrust immunity with their US alliance partners - and the competition concerns that some raised at the time have not been borne out by experience. So our application for oneworld airlines to have the same freedom to co-operate over the Atlantic as Star and SkyTeam do is not about weakening competition, but strengthening it.
Star has 35% of the EU-US market, and Skyteam 28%. Oneworld has 21%. If you look at shares on transatlantic routes from their European hubs, the Big Two are even more prominent. Star has an 80% share from Frankfurt while Skyteam has 73% from Paris and 85% from Amsterdam. In comparison, the combined share of British Airways and American from Heathrow is 51%.
Nonetheless, Virgin - which did not oppose ATI for Star or Skyteam - claims that ATI for us would lead to higher fares and poorer service. This is nonsense. The exceptional competition levels at Heathrow (which are growing for the winter with Continental increasing its schedule) are not going to disappear if our tie-up with American goes ahead.
Airline passengers are extremely discerning. If we were sufficiently misguided to jack up fares and cut service quality, our customers would vote with their feet - straight on to the aircraft of our many competitors. Is Virgin saying its own product is not good enough?
The truth is our operation with American would create real customer benefits. It would provide not only better connections, but also greater access to discounted fares, reciprocal frequent flier rewards and - for corporate customers - more flexible and geographically extensive deals.
Competition regulation is no longer a narrow matter between the UK and US. It is between the EU and the US.
That is a market of 42 airlines. If Virgin thinks that ATI confers advantages, there is nothing to stop it joining an alliance and making its own application. You don't have to stay a virgin all your life. Richard Branson claims that we have massaged our market share figures. This is a red herring. They are not our figures. They are MIDT data, which we are required to submit by the competition authorities.
The regulators use this data because it is the most authoritative markets information available. They used it in determining the Star and Skyteam ATI applications.
It is curious why Virgin rubbishes these figures now, yet in a previous US Department of Transportation filing praised MIDT data as a unique source that "helps carriers make decisions about whether or not to enter markets or expand capacity".
Virgin is a lone voice. Its arguments are stuck in the past. We are facing the future. Our aim is to create a stronger business, able to withstand the present economic storms, invest and compete for the benefit of customers - the one group that can ensure long-term success.
Nobody doubts that the airline industry is facing unprecedented difficulties, but with so many carriers having disappeared in the last six months without financial or regulatory assistance, why should British Airways be given special treatment?
Too often in the past, BA has been given a competitive advantage. It was gifted tens of thousands of slots at Heathrow Terminal 4, Gatwick North and, it hardly needs saying, the near £5 billion ($8.9 billion) Terminal 5. Despite all of this, BA is now asking regulators to help it effectively merge with American Airlines so that it can beat off the downturn.
BA is already a dominant player. It has 42% of the slots at Heathrow. It has much more than 50% of the market between Heathrow and New York JFK. No single competitor, no other alliance, can even dream of replicating its network from Heathrow. This is why the interests of consumers should be the guiding principle for competition regulators. It is ironic that the UK's Competition Commission recently called for the break-up of one monopoly, BAA, yet BA is trying to create another one with American. If their proposals were approved, competition would be reduced on six routes from Heathrow to the US and BA/AA would have a monopoly, or near-monopoly, on some of the busiest and most profitable routes from Europe.
The two airlines, working as one, would operate 79% of all flights between Heathrow and Boston, 66% between Heathrow and Chicago and 63% between Heathrow and JFK. Not to mention the 100% pure monopoly between Dallas and Heathrow. They would also be highly dominant on several other Heathrow-USA routes.
It is Heathrow which plays such a critical and unique part in this application for antitrust immunity. No other European airport comes even close to Heathrow's importance as a launch pad for travellers to the US. Carriers serving Heathrow operate almost twice as many ASKs to the US, compared to the other leading European hubs such as Paris Charles De Gaulle and Frankfurt. In fact, even before American is added to the mix, BA alone operates more ASKs to the US from Heathrow than the immunised SkyTeam carriers do from CDG or Star Alliance carriers do from Frankfurt.
Unlike Frankfurt or CDG, Heathrow is full. Heathrow remains severely slot constrained with very few additional slots available to existing carriers or new entrants. The rare slot that does appear is usually at a time of day that does not work for transatlantic carriers. This situation makes it physically and financially impossible for any carrier to offer any meaningful level of competitive service to challenge the frequency and network dominance that BA/AA would enjoy. Access issues are not constrained to Heathrow alone. At JFK and Newark authorities have capped operations, severely constraining the prospect of new entry and competition on these routes.
BA says that the Open Skies accord has opened up competition. Hardly. Even where Open Skies has led to competitive entry, the effect has been derisory. On the BA/AA overlap routes, frequency of services post-Open Skies has changed on only two of these - JFK and Los Angeles - and BA/AA would still represent the dominant incumbent or monopoly provider on the vast majority of routes from Heathrow to the US. In fact, carriers are actually disappearing, providing even less competition than there is today. So BA is becoming even more dominant even before the regulators have considered their application with AA.
BA/AA wouldn't merely raise fares if their application went ahead. They would also pressure travel agents into accepting poor deals, as BA has been fined for doing in the past. Let's be clear - a bigger airline, with less competition, would force up prices or give lower incentives because it wouldn't face as much pricing pressure.
The current economic malaise is no justification for regulators to let these proposals through. Consolidation can be a good thing but it needs to create more effective competition between groups and not allow one to become even more dominant. Just imagine what the BA/AA monster monopoly will be like when the economy recovers in two years' time? Antitrust laws need to be upheld as much in an economic downturn as in an upturn.
BA's dominance at Heathrow needs to be kept in check. Competitors cannot recreate its network. Consumers need meaningful competition. Regulators need to ensure they guard the consumer interest for the long-term, not merely react to BA's difficulties in the short-term.
Watch our video interview with Steve Ridgway from the recent IATA agm
Willie Walsh on AA/BA
The competitive environment has changed dramatically since our last application for antitrust immunity with American, therefore Virgin’s arguments are stuck in the past, says British Airways chief executive Willie Walsh
British Airways' application for a transatlantic joint business agreement with American Airlines and Iberia takes place in a competitive environment that has changed dramatically in recent years.
When we made previous applications for antitrust immunity in 1996 and 2001, Heathrow was a closed shop. The right to fly from there to the US was restricted to four carriers: BA, American, United and Virgin. The first stage of the European Union-US Open Skies agreement has changed all that.
The Heathrow-US market is now open to any EU or US carrier. In only six months since Open Skies came into effect, five additional airlines have begun transatlantic services and capacity has increased by 22%.
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" There's nothing to stop it making its own application. You don't have to stay a virgin all your life"Willie Walsh |
Heathrow has more competition on US routes than any other European airport - and there is nothing to stop more airlines coming in. Bmi, Heathrow's second largest airline with 11% of the slots, has yet to enter the fray.
The second major change is that our main European competitors Lufthansa and Air France-KLM have been granted antitrust immunity with their US alliance partners - and the competition concerns that some raised at the time have not been borne out by experience. So our application for oneworld airlines to have the same freedom to co-operate over the Atlantic as Star and SkyTeam do is not about weakening competition, but strengthening it.
Star has 35% of the EU-US market, and Skyteam 28%. Oneworld has 21%. If you look at shares on transatlantic routes from their European hubs, the Big Two are even more prominent. Star has an 80% share from Frankfurt while Skyteam has 73% from Paris and 85% from Amsterdam. In comparison, the combined share of British Airways and American from Heathrow is 51%.
Nonetheless, Virgin - which did not oppose ATI for Star or Skyteam - claims that ATI for us would lead to higher fares and poorer service. This is nonsense. The exceptional competition levels at Heathrow (which are growing for the winter with Continental increasing its schedule) are not going to disappear if our tie-up with American goes ahead.
Airline passengers are extremely discerning. If we were sufficiently misguided to jack up fares and cut service quality, our customers would vote with their feet - straight on to the aircraft of our many competitors. Is Virgin saying its own product is not good enough?
The truth is our operation with American would create real customer benefits. It would provide not only better connections, but also greater access to discounted fares, reciprocal frequent flier rewards and - for corporate customers - more flexible and geographically extensive deals.
Competition regulation is no longer a narrow matter between the UK and US. It is between the EU and the US.
That is a market of 42 airlines. If Virgin thinks that ATI confers advantages, there is nothing to stop it joining an alliance and making its own application. You don't have to stay a virgin all your life. Richard Branson claims that we have massaged our market share figures. This is a red herring. They are not our figures. They are MIDT data, which we are required to submit by the competition authorities.
The regulators use this data because it is the most authoritative markets information available. They used it in determining the Star and Skyteam ATI applications.
It is curious why Virgin rubbishes these figures now, yet in a previous US Department of Transportation filing praised MIDT data as a unique source that “helps carriers make decisions about whether or not to enter markets or expand capacity”.
Virgin is a lone voice. Its arguments are stuck in the past. We are facing the future. Our aim is to create a stronger business, able to withstand the present economic storms, invest and compete for the benefit of customers - the one group that can ensure long-term success.
Read our March issue cover interview with Willie Walsh
About the AA/BA application
Oneworld partners American Airlines, British Airways and Iberia filed for anti-trust immunity from the US Department of Transportation for a joint agreement on flights between North America and Europe in mid-August. This is the third time American and BA have applied for anti-trust immunity, with the previous attempts taking place in 1996 and 2001.
Source: Airline Business
