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Competition & Markets Authority launches probe into the BA / AA / Iberia / Finnair transatlantic JV

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The Competition & Markets Authority launched an investigation yesterday into the transatlantic joint venture which is operated by British Airways, American Airlines, Finnair and Iberia.

Details are on the CMA website here.

Almost all Head for Points readers will know that these are all airlines in the oneworld alliance, and that you can earn Avios and British Airways tier points on all of them.

What you might not know is that, when it comes to flying between Europe and North America, they are literally the same business.  There is no competition between the four carriers.

When you book a flight to New York on British Airways, British Airways does NOT get your money.  It goes into a big pot, together with all the money that American, Iberia and Finnair receive for selling flights between Europe and North America.  This money is then shared out between the airlines using an unknown formula.

This removes most incentives for competition between the airlines.  I imagine the only real competition is working out how to juggle the formula in order to take more than your fair share from the overall pot …. after all, if you agreed to pool your salary with everyone else on your street and split it later, you wouldn’t be queuing up to do any overtime.

The current position ….

Those of a certain age will remember the Virgin Atlantic “No Way BA / AA” campaign which tried to get this agreement blocked.  See:

However, the deal was eventually signed off by the EU.  As a concession, in 2010 the airlines committed to making landing slots available at Heathrow or Gatwick to competitors who wanted to launch London-Dallas, London-Boston, London-Miami, London-Chicago or London-New York.  Importantly, this commitment will lapse in two years.

Whilst this was originally an EU matter, the CMA has stepped in now because of the likelihood that the EU will no longer have jurisdiction in 2020.

But will anything change?

The market has, of course, moved on from the days of “No Way BA / AA”.  Virgin Atlantic was – arguably – forced into an identical joint venture with Delta Air Lines which became a 49% shareholder.

More importantly, Air France KLM is about to become a 31% shareholder in Virgin Atlantic.  Those two airlines are going to fold all of their transatlantic routes into one big Virgin / Delta / Air France / KLM joint venture.  It is hard to see Virgin Atlantic pushing to get the BA / AA deal scrapped because, if it was, its own four-way tie-up would also inevitably collapse.

Norwegian has shown that, at least at the budget end, it is possible to compete against these two alliances on transatlantic routes.  The failure of IAG (the parent of BA and Iberia) to buy Norwegian this year may have a silver lining in that it will show the CMA that there is competition out there.  On the other hand, the failure of La Compagnie and many others has shown that competition for the ‘business pound’ is tougher.

The position of Aer Lingus is also interesting.  It is not in the BA joint venture, and it is not in the oneworld alliance, but as it is owned by the same parent as British Airways and Iberia it presumably sets its pricing with one eye on what its siblings are doing.

From my many conversations with airlines, the real sticking point is NOT the joint ventures – it is the frequent flyer programmes and the unwillingness of corporate travellers to move away from their preferred scheme.   Breaking up the joint ventures but retaining the ability to earn Avios and British Airways tier points on American, Finnair and Iberia would not change customer behaviour much.  Similarly, if the ability to earn miles and points was removed from the other three airlines, the joint venture would have virtually no traction anyway.

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Comments

  1. There are some benefits to this kind of joint venture. When one of the airlines has a sale the others always lower their ticket prices to match even if they don’t advertise what they are doing. Two weeks ago I noticed an offer for cheap fares Finland – Japan from Finnair but I knew that Japan Airlines and BA would offer the same fare, so booked that price with Japan Airlines (much better service than BA or AY). It was even possible to route HEL-NRT via LHR to get 140 tier points each way instead of 90.

    • Nigel the pensioner says:

      So why do you want the tier points if you dont want to fly ba? If its the avios you want, fair enough, but stop mentioning tier points!

      • Richard says:

        To get the benefits of oneworld status??

      • tier points = status, avios = travel (or other stuff)

      • Obviously for status which is across the OW alliance. Lots of BA golds do little long haul on BA.

        • Shoestring says:

          Min 4 BA SH hops per status annum! 🙂

          Can cost as little as £100 all in.

        • And IB flights count too if you really want to avoid BA

        • Shoestring says:

          IB flights count as BA metal for the 4 minimum BA flights to get status? Do you have to get TPs sent to BA?

        • Shoestring – Are you asking if you can credit the Iberia flights to a different FF account while using them as your 4 qualifying flights? I don’t see how that could possibly work?

        • David S says:

          We have used BA shorthaul economy to mainly Scandinavia to start our QR business class trips to hit the minimum 4 BA flights.
          Shoestring- yes you need to send your TP to BA for it to count unless you are working on getting status via Iberia.

        • I went from Blue to Bronze without setting foot on BA. One return trip to Florida on AA in Business, changing to Domestic First in Philly. Booked through BA and all flights had BA flight numbers but on AA.

          The only benefits of status for me were earning more Avios on paid flights, and the ability to reserve seats earlier if flying J on a BA redemption.

        • Eligible flights are defined as those flights marketed OR operated by British Airways, and those flights marketed AND operated by Iberia.

          ‘Marketed’ means the flight will have a BA flight number (in your itinerary or on your ticket).
          ‘Operated’ means the aircraft that you travel on is a British Airways aircraft (including franchises and BACityflyer).
          ‘Marketed and operated by Iberia’ means the flight will have an IB flight number and the aircraft you travel on is an Iberia aircraft (including franchises).

        • Shoestring says:

          Thanks for finding it/ defining terms

  2. Whilst I am delighted to hear of this investigation I fear it will not result in greater competition and a better deal for consumers.
    BAEC is the only deal in town for UK based consumers wishing to engage in miles and points collection. It is the only scheme with the sort of partners that allow you to collect miles from shopping, spending and flying, AA in particular have almost no presence in the U.K. other than flying and that simply cannot be a coincidence given their tie up with BA.
    The lack of competition also allows BA to charge ludicrous fees on redemptions and then pretend ( with the help of HFP at times) that these are taxes. These are particularly pernicious when BA charge them on flights operated by other carriers who themselves have no such fees.
    Worse is that the lack of competition has allowed BA to keep cramped world whilst benefitting from AA investment in new products. No one in their right minds would choose club to JFK over AA 777-300 seating. But BA don’t care as they get your money either way.
    BA have a long history of dirty tricks and from my own perspective the current arrangements seem to be a legalised version of exploiting consumers and it needs to come to an end.
    Norwegian have had limited success but recent announcements confirming withdrawal from many routes shows how limited this is.
    The cost cartels at LHR need to be broken up

    • Slightly confused by this – Virgin offers an alternative loyalty scheme where you can earn points from shopping/spending/flying. VS also charge heave surcharges on redemption tickets so its not just BA. As for the BA product, we have seen improvements with more, including all aisle access in club, on its way next year.

      • I fly BA but do so with my eyes open. The all aisle access CW seat coming next year…… will that still be coming next year in 2019. BA are the masters of jam tomorrow. If they took over a year to change the food and bedding, and have actually unwound some of the food changes before it was fully rolled out, how long before this new seat, should it ever actually arrive, is widespread across the fleet. I understand it’ll come first on the new A350’s, but will it ever be seen elsewhere.

    • So anyone flying CW rather than AA is not in their ‘right mind’. Does it ever occur to you others may feel differently. As a solo traveller, and a BA status holder I’ll choose 747 upper deck windows in CW as my preferred option. The AA seat has some good and some less good features.
      If you were based in another European city would you have some choice of carriers that you don’t with the UK?
      Given the likely Virgin links with Flying Blue the UK maybe better served for frequent flyer programs than other European countries.
      There is plenty of choice in the U.K. when flying to 100’s of destinations.

    • Are you really so arrogant as to think American Airlines is interested in everyday retail partners on the UK High Street? What other countries do they do that in? If BA are forcing them not to, why won’t Delta or United do it?

      Brexiteers are going to be in for a rude awakening when they discover the UK isn’t actually the centre of the universe!

    • So which other European frequenct flyer schemes don’t charge ‘ludicrous’ fees on redemptions? You could argue that with BA’s RFS short haul fees they’re actually far more generous than most.

      • Lufthansa wants 35,000 miles plus £80 tax for London to Frankfurt in Economy. Bear this in mind …

      • Why restrict your question to European FF schemes? It’s a big world. No reason not to have FF accounts with worldwide airlines. Very few (of the ones I have looked at) charge more than a fraction of BA, RFS apart.

        • Because the original question is all about competition. BAEC aren’t in competition with US/ME and Asian frequent flyer schemes. Even if they have far lower fees very few people are going to use them because of the limited destinations. By contrast if M&M or Flying Blue lowered their fees those schemes would become very attractive to UK customers. Of all of the schemes BAEC are actually in competition with they’re on a par for long haul fees and massively more generous for short haul fees.

        • Andrew – I’d argue they are in global competition. I maintain balances in 4 schemes, 2 of them are American.

          With alliances letting you spend and earn across the whole planet, there’s no reason why you shouldn’t collect with a foreign scheme.

          Id still say BA offer good value short haul redemptions though. United is cheaper at 16k miles on that route above, but tax is even higher.

  3. Nigel the pensioner says:

    I can see the attraction of earning (NOT buying) avios, but I still cant see why people are hell bent on getting tier points for gold with BA, when they go out of their way to NOT fly with them!! What advantage do you get? Gold with BA gets you checking in in the F area at T5, but doesnt get you anything like the same in T3 for example!

    • Gold pretty worthless on BA but it does open up extra seats using Avios and the double Avios availability option can be valuable benefit if you are stuck with school holiday travel in Europe. Think
      Half term skiing.
      The real benefit is on other carriers where emerald seems to mean something.

    • TGLoyalty says:

      All the same advantages on oneworld carriers.

      T3 you have access to Cathey 1st lounge

    • Double Avios and higher priority for upgrades. I found the extra economy redemption seats quite useful in short haul.

      • Shoestring says:

        Possibly a bit of Gold recognition on board? I wonder if having a decent stash of Avios helps as well. My wife is sitting on nearly a million and always seems to get good things happening to her – upgrade from HBO to CW, on Avios redemptions allocated exit window seats or windows high up the plane etc.

        Can they/ the algorithms at work see the size of your stash? And is it a positive?

        • Well I try to keep my avios balance under 5 figures, and I get more recognition on other OW flights than BA.

          But then I only spent £3000 per year with oneworld in order to get BA Gold for the past 2 years, and I didn’t even have to go anywhere I didn’t want to go.

    • Why have a BA gold card when you don’t always fly BA from Heathrow? Well amazing as it might seem not everyone lives in the UK and even if travelling via LHR (last month I did HEL-LHR-HKG-KUL) then the F check in is irrelevant and it was a bonus that the transfer was in T3 with CX first class lounge to enjoy instead of the Asda cafe quality food from the BA “F” lounge.
      I specifically chose CX+CX to get from LHR to KUL instead of a direct BA flight. The price difference economy -> premium economy on CX is half that compared to BA (I am not talking about UK issued tickets here but what those in the UK call “ex-eu tickets”).
      Several times CX have upgraded me to business class thanks to the gold card and in every way that is better than BA club class.

    • David S says:

      The main benefits are not directly related to BA. I have only done a tier point run to Europe once when I was slightly short of miles but normally only travel where I want and get the points.
      I have been to CX first class lounge in LHR and HKG and Qantas first class lounge in SYD and LAX and lounge access even when flying economy is not to be sniffed at. Also I have been upgraded twice to CW from PE on BA and got an upgrade to Qatar First class from Sydney because of BA Gold/ OW status.

    • Tier points are the key to BA and OneWorld status, and even Bronze and Silver are useful for many, especially when flying economy. Silver (Sapphire) gives lounge access and seat assignments on booking, even with BA, as well as extra/free luggage. Even Bronze (Ruby) gives seat assignments 7 days ahead on BA, and opens up better seats, on booking, with AA and Qantas, for instance.

      • Bonglim says:

        I have been upgraded once, to CW, travelling as a couple.
        We had no status at all, had never done a CW flight and was before I started collecting Avios. It was a big flight LHW TO JFK.

        I can’t believe there was no other couple with any status? Not even bronze?
        Do they really take account of status when upgrading?

  4. Memesweeper says:

    The JV is on the face of it, anti-competitive. In the past competition authorities throughout the West have tolerated all sorts of anti-competitve arrangements and practices, including big mergers and market domination, provided prices are not jacked up.

    The JV is not the only barrier to entry for a competitor: BA has a dominant position at LHR; BA has. a large base of aircraft; BA has a popular frequent flier programme. All of this will be ignored provided prices for most consumers are not rising precipitously.

    • Shoestring says:

      Not always a bad thing to offer some protection to our bigger British players, I’m thinking of corporation tax in particular. The bigger & stronger they are, the more tax they pay in the UK (generalisation but still true enough). Look at Cadbury – it used to be a decent British company paying decent chunks of corporation tax. Acquired by Mondelez with lots of empty promises, LY it reported profit of £185m, paid a dividend of £247m to Kraft Foods & ended up paying *ZERO* corporation tax in UK. All 48 UK Mondelez subsidiaries made combined profit of £1.3bn and paid total corporation tax of £5.9m. I guess you could argue that Cadbury was simply naive in organising its tax affairs whereas Mondelez is savvy. Still amounts to the same thing. UK listed companies pay more tax in the UK than would otherwise be the case, not a big strategic mistake by HMG to protect them a little.

      The French get this.

  5. OT – Have Emirates generally increased prices. Cheapest flights I can find is £460 and few months ago it was £360

    • What route?

    • There was a sale a couple of months ago.

    • In general terms i think there has been a shift by Emirates, they were often the cheapest (and best) option for long haul economy, but now see Qatar/Etihad/KLM and even BA often offering cheaper long haul flights. As i say, its a general observation based on friends experience.

    • The Lord says:

      Thought this too. Recently booked to NZ in December and was expecting to see Emirates if not the cheapest then certainly competitive. Not even close in the end, ended up going with Qantas

      • Qantas codeshare with Emirates, so you could have ended up on the same flight but by paying more!

    • Richard says:

      If it is for the period when the runway at DXB is shut you would expect higher prices

      • Dummy runs throught December/Jan/Feb show same prices (460)
        I am aware of the sale which Emirates were doing but, having travelled earlier this year and was prepared to go in Jan but they hiked up the prices

  6. You should not assume that BA and AA are the same price. Flying with BA to the USA and then onward on AA is often cheaper on AA than BA – so there is competition on prices. Not that people would realise this.

    • Did you know that BA staff price all AA flights from Europe/UK to the US? And vice versa? Prices may be different, but it’s not because of competition. There is also an inventory question but they’re working to align this.

  7. Is presence of Norwegian, a failing airline that everyone is expecting to go bust soon a good example of competition though?

    • Failing how?

      • Shoestring says:

        Norwegian is a basket case (Balance Sheet, P&L) – google [Norwegian fights for survival as predators circle] to read the FT article/ get behind paywall.

        • I feel it’s a couple of strikes away from disaster – bad luck, bad decisions or global events going against it – but all over-expanded businesses have been there. If it makes it through this winter it’s here for the long haul (pun intended).

        • Have you looked at their balance sheet and P&L, or are you relying on other people just telling you they’re a basket case?

          As Kjos correctly points out, people have been predicting they’d go bust since the beginning. While they are in a risky position, they are not a basket case. Yes, a major problem could cause it to collapse, but if it manages to tick along for the next year or two it will thrive.

        • lady london says:

          It will be a great pity if British Airways and the other legacy airlines succeed in killing off Norwegian. They have form for that going right back to Laker.

          But Yes provided prices don’t become predatory on Translatlantic I agree with Harry /Shoestring that we would be doing no different than some other EU governments if the competition authorities let it go for now provided they keep it under review.

  8. The JV airlines are free to set their own prices. AA is often cheaper then BA I find, even if it’s just an AA codeshare on BA metal!

  9. Phil Duncan says:

    I hope they will add Aer LIngus into this mix too, their fares have rocketed since the IAG take over and I can see no other reason than that for it.

    • RussellH says:

      Surely, like any free-market business, they charge what the market will bear. If they find that means they can increase prices, then that is what they will do.
      Your question should surely be, why would they not increase their prices??

      • Phil Duncan says:

        Perhaps if you believe in free market economics dominated on the edge of Western Europe by a group who offer an ever diminished product while making obscene profits and paying slave wages to their employees.

        I don’t believe in that.

  10. GUWonder says:

    The formula for the revenue split is proportional to the covered market seat miles flown by cabin.

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