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Will the British Airways / American Airlines joint venture be broken up if Virgin Atlantic goes bust?

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However good your hearing is, you will have struggled to pick up the sound of British Airways demanding that Virgin Atlantic and Norwegian must not receive Government support and be allowed to fail.

Have you wondered why?

After all, Willie Walsh – CEO of BA’s parent company IAG – couldn’t keep himself out of the newspapers and TV studios earlier this year when Flybe was looking for Government help.   IAG even filed an official complaint with the European Commission.  And so it came to pass ….. Flybe failed, allowing British Airways to pick up – for free – a package of 12 daily Heathrow Summer slots worth at least £100m.

If Willie was angry about Flybe getting help, despite the fact that the number of routes where it competed with British Airways was minimal, you would expect that he would be apoplectic by now at the idea that Virgin Atlantic may receive support.

And yet, silence.

british airways american airlines joint venture ending?

Here’s an idea …..

Back in 2018, the Competition & Markets Authority launched an investigation into the transatlantic joint venture between BA, American Airlines, Iberia and Finnair.

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

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 2018 investigation was not unexpected.  The original 2010 joint venture agreement was due for renewal.  What IS unexpected was that it has not been resolved.  Observers believe that something is ‘up’.

The CMA has been getting more aggressive in recent years.  As you may have seen in the press, it recently tried to stop Amazon investing in Deliveroo.  This is NOT because Amazon has its own food delivery business and so it would reduce competition.  It was blocked because Amazon MIGHT IN THE FUTURE have gone back into UK food delivery but wouldn’t bother if it had a share in Deliveroo.

(This deal was eventually rushed through last week after Deliveroo said that it would go bankrupt without the investment.)

This sort of high-level economic thinking, whilst sensible, is not what you usually expect from competition regulators.

british airways american airlines joint venture ending?

If the CMA was already unhappy about the BA / AA / Iberia / Finnair joint venture …..

Let’s assume that the CMA was unhappy about the BA / AA / Iberia / Finnair joint venture before coronavirus.  This is back in the good old days of 2019 when Virgin Atlantic was still in good shape and Norwegian was alive, if not well.

Now imagine what the CMA will say if Virgin Atlantic and Norwegian disappear from the scene.

London to New York alone generates ticket sales of over $1 billion per year.  British Airways and American Airlines would suddenly have an unsustainable market share of the most valuable airline routes in the world, between London and the United States.

A handful of United Airlines and Delta Air Lines flights per day would not offer much competition, especially given the lack of onward connectivity into Europe.

Here is the bizarre situation where we find ourselves.  The financial hit to British Airways of having to dismantle the transatlantic joint venture and compete with American Airlines may be bigger than the financial hit it currently takes by competing with Virgin Atlantic and Norwegian.

Are we about to see British Airways actively encouraging the UK Government to SAVE Virgin Atlantic?  Given the choice of losing competition from Virgin Atlantic or losing the money from the transatlantic joint venture, I think that British Airways is more scared of the latter.

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Comments (106)

  • Chrish says:

    Should be broken up regardless NO further comment necessary !

  • Ert says:

    I hope so. Another reason why the cartel shouldn’t get a bail out.

  • Mr(s) Entitled says:

    It should really be broken up anyway.

    But I doubt very much that this is the primary reason. Simply from a PR perspective now is not the time to be seen to be pushing companies, and by extension employees, out of work. Stay quiet and let nature take it’s course.

  • Paul says:

    This article demonstrates just how ill served the U.K. people are by this legalised cartel. End it, let’s get some real competition back!

    • Nick says:

      The JV forced both BA and AA to improve their customer product. AA didn’t have all lie-flats in business pre-JV, for example, and now they do. Because they improved the seat so much, BA then had to come up with Club Suite. They forced each other to improve through the JV (and yes I do know this for sure). Connectivity benefits too, as do those taking TP-hops via HEL and JFK to the west coast.

      You may argue that customers lose from lack of competition, and in some ways you may well be right. But it’s a greyer area than you think, there are customer benefits in other areas from working together. With DL/VS, UA and DI as competition to moderate, it’s basically been ok. Upset that balance and Rob is right, it’s likely all off.

  • Ken says:

    The JV should be broken up.

    However I suspect every business leader with any sense is keeping very quiet at the moment.
    Really not a good look to either be aggressively putting the begging bowl out OR lobbying to see a rivals demise.

  • luckyjim says:

    Or it could just be that IAG don’t want to burn their bridges in case one of their airlines needs a loan in the future. They could not really accept a government loan for Aer Lingus, say, if they opposed a similar loan for Virgin.

    • I think it’s as simple as that! BA (or one of the other IAG airlines) might need government assistance in the future. The general consensus I’ve heard is BA would be quiet on the subject until (or if) VS collapse because they didn’t want to argue the case against bailout and then suddenly change their public viewpoint.

      You can’t really compare the Flybe situation to what we have now. Back at the beginning of the year nobody predicted LHR would be down to 2 terminals and major airlines like BA and Lufthansa struggling. What use are the Flybe slots to BA now? They probably see them more as a liability as anyone else can apply for them so BA can’t use them for anything useful (plus now I see possible that LHR might have slots to spare for a while).

  • J says:

    Good article makes sense. I would guess because of the scale of this crisis the CMA may go easier on airlines though… But agree still seems a stretch this JV would survive in that form.

  • Marcw says:

    The JV should brake up anyway… There’s just an oligopoly in the London – US market, dominates by BA and AA, soon to be an almost monopoly when Vrigin says goodbye