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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