Potential for Antitrust in Huge Proposed Airline Agreement

Washington, DCWhile it hasn't come down to an antitrust class action lawsuit (and it may not ever), today's antitrust news once again includes the airline industry. As reported yesterday by Bloomberg News, the European Union (EU) has forwarded antitrust complaints to American Airlines (AA), British Airways Plc (BA) and Iberia Lineas Aereas de Espana SA with regard to a proposed trans-Atlantic alliance.

According to Bloomberg, the three carriers arrived at an agreement that would see them co-coordinating operations and the marketing of trans-Atlantic routes. The trio of carriers is seeking clearance to cooperate on flights between the US, Mexico and Canada, the 27-nation EU, Switzerland and Norway.

They have already asked for antitrust immunity, seeking such immunity from the US Department of Justice last year. As for the EU, the complaint from the Brussels-based commission holds that the agreement might break EU rules on so-called "restrictive business practices."

It was in 2008 that the EU and US agreed to foster trans-Atlantic airline competition by allowing European carriers to fly to the US from anywhere in the region, rather than from just their home country. At the same time, the Open Skies accord did away with restrictions that allowed only British Airways, Virgin Atlantic Airways Ltd., American and United Airlines to fly between the US and London's Heathrow airport. The latter is Europe's busiest tarmac.

"The commission's concerns are absolutely justified," Virgin Atlantic Chief Executive Officer Steve Ridgway said in a statement. "This alliance between BA and AA is a monster monopoly which, if given the go-ahead, will allow these dominant carriers to increase their stranglehold," at London's Heathrow airport.

Some industry watchers have suggested that even in view of the complaint put forward by the EU, airlines might face a tougher sell with the US Department of Justice.

Still, says Douglas McNeill, an analyst with Astaire Securities in London, "The odds are in favor of a successful application if other alliances have been granted. That's not to say there won't be conditions attached, as in the past the regulators have asked for slots to be given up."

British Airways and American say they need a tie-up for their Oneworld partnership to compete against UAL Corp.'s United Airlines Star Alliance with Deutsche Lufthansa AG and the Delta Air Lines Inc. and Air France-KLM Group led SkyTeam on routes across the Atlantic. The carriers also need antitrust clearance from U.S. regulators before proceeding with the alliance.

As with any attempt to consolidate operations and reduce competition, there is always the risk that consumers will lose in the end.