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American Airlines and British Airways forced to surrender slots by Competition & Markets Authority

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The Competition & Markets Authority has today published its provisional findings into its 18 month review of the ‘UK to US’ part of the transatlantic joint venture operated by British Airways, American Airlines, Iberia, Finnair and (soon) Aer Lingus.

This is a difficult time to publish such a report.  The review was conducted on the basis that Norwegian and Virgin Atlantic were ‘going concerns’.  At present, Norwegian will not operate any services from London Gatwick to the US until at least April 2021, whilst the future of Virgin Atlantic is uncertain.

This has caused problems for the CMA, which has spent 18 months working on a set of competition assumptions which may no longer be valid.

You can read the CMA’s full report here.

It finds that:

“The CMA’s view is that the AJBA gives rise to competition concerns in respect of the Routes of Concern and that the Parties have failed to demonstrate that the consumer benefits identified are such as to outweigh these.”

and

“the CMA has significant doubts about the robustness of the Commitments Parties’ econometric evidence”

What is the CMA proposing?

In summary, it finds that there is not (even with Norwegian and Virgin Atlantic operating) enough competition on some routes between London and the United States.

Should these provisional findings be accepted after a consultation period, AA and BA will be forced to surrender certain flights to competitors.

The CMA has reserved the right to re-open the investigation after two years should the competitive environment change (ie Norwegian and/or Virgin Atlantic fail).

Which flights must American Airlines and British Airways surrender?

Here are the findings:

London to Boston

AA and BA to surrender, between them, one pair of slots per day

London to Dallas

AA and BA to surrender, between them, one pair of slots per day

Until a rival airline agrees to operate this service, AA and BA must operate a minimum of 870,000 seats per year on the route

London to Miami

AA and BA to surrender, between them, one pair of slots per day

London to Philadelphia

AA and BA to surrender, between them, one pair of slots per day subject to certain specific conditions

Until a rival airline agrees to operate this service, AA and BA must operate a minimum of 635,300 seats per year on the route

Interestingly, although it has never been taken up, both the existing and new agreements force BA, AA, Iberia and Finnair to allow a new entrant to issue its customers with frequent flyer miles and tier points in their programmes if it had no frequent flyer scheme of its own.  Effectively, the joint venture members would be legally obliged to welcome a new entrant as a full partner in their programmes.

These commitments were meant to secure UK Government approval for the joint venture until 2030.  Due to the risk of permanent changes in competition in the aftermath of coronavirus, the Competition & Markets Authority has reserved the right to open a new investigation at any point between 24 and 60 months from when this agreement comes into force.

You can learn more in the full report here.  You are welcome to submit a representation until 4th June.

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Comments (53)

  • David Cohen says:

    Seems like they’ve gotten away quite lightly. Presumably they only have to surrender a slot to someone that actually wants to operate the service?

    It would seem certainly at the moment that perhaps except for JetBlue (from Boston), I don’t see anyone else taking advantage of these. Unless they could operate a W formation between some of the destinations.

    DFW and PHL are both AA fortress hubs so can’t see anyone else wanting to run services from LHR as there would be no feed at the US end.

  • Stuart says:

    Being forced to operate a certain amount of seats could become more of an issue in the short term!

    • ADS says:

      indeed. but it sounds like a neat solution to the risk that BA/AA will restrict supply to push up prices.

      has this “minimum supply” solution been tried before ?

    • James F says:

      Indeed. Would be very interesting to see what the yields on Dallas & Philly are

    • Dubious says:

      Do the seats still count if you put cargo boxes onto of them? 🙂

  • Doug M says:

    I don’t quite get this, MIA, PHL and DFW all AA hubs, why would DL or UA want to run services into non connected hubs other than spoilers. If I want to go to Atlanta, Detroit or Minneapolis then Delta are the obvious choice.
    JetBlue might want Boston, but what use is one slot pair, hardly going to be economic to operate against existing carriers.
    I think sometimes competition authorities don’t understand what they’re doing. Look at Premier League where they forced the break up of Sky monopoly, created multiple packages and now it’s more expensive to watch because you need more than one subscription. Absolutely no benefit to the consumer as BT and Sky bid crazy amounts to get the games and then the consumer gets the bill.

    • marcw says:

      That´s surely the issue: OW hubs on both sides of the Atlantic. Apparently last time DL took over some LHR to PHL slots, operated them for 3 years, and then moved away from the route but retained the slots!

      • Doug M says:

        Which is my point. If the slot carries a route obligation it’s not very attractive. If you just give the slot away the chances are the recipient uses it to entrench their own position to an existing hub. Competition if needed comes from ending the joint venture, not from scratching at the edge of it. Now if all 4 slots went to JetBlue to fly to their choice, transatlantic competition is increased, whilst Miami, Philadelphia and Dallas likely decreased as JetBlue operate to/from Boston and New York.

    • Simon says:

      Delta (possibly in the guise of Virgin) will take Miami, they’ve been building it up a bit recently.

      And JetBlue will take Boston as you say – means that they can operate two slots per day for the price of one.

      But otherwise this does feel like a remarkably lightweight slot surrender. Maybe it shows thats tatl in the broadest sense (ie including non direct flights) remains competitive.

      • ChrisBCN says:

        Yes removing 4 pairs of slots out of (hundreds?) seems like the the CMA are saying that there is no broad competition issue here, aside from this small number of routes. Considering there are 3 big groups operating between London & US (AA/BA, Delta, United) plus Norwegian, JetBlue on the way, and non-direct competition this seems a sensible decision.

        • Rob says:

          AA and BA could only compete on certain routes. AA would not fly from a non-hub to London.

          • Charlie says:

            That’s not true – AA fly to LHR-RDU for example and RDU is not a hub.

          • Rob says:

            There must be some sort of base there or where would the crew etc come from? Unless the aircraft triangulates and goes, say, Miami – Heathrow – Raleigh – Heathrow – Miami.

          • Doug M says:

            RDU’s busiest international route is AA to London, and AA account for about 23% of its passengers traffic, behind only Delta’s 31%.

          • Gavin says:

            The Raleigh Durham flight is largely filled with GSK employees I believe

          • Spaghetti Town says:

            Yes rob that’s exactly what it does

          • Will in SFO says:

            RDU flight is bank rolled by GSK who guarantee a certain number of seats per year.

          • Cam says:

            AA historically operated a mini-hub (“focus”) at from RDU, though this has been scaled back since the merger with US. Connecting xxx-RDU-LHR used to regularly be offered for flights US-UK. The RDU-LHR route is a legacy of this, and as others have noted, reportedly operated primarily to serve GSK traffic. IIRC, the relevant contracted even reportedly prevented a downgauge to 757 at one point.

    • Callum says:

      You’re completely ignoring the hubs on the UK side… Both Norwegian and Virgin, at the time of the creation of this report, are two airlines who have hubs on one side of all of those routes.

    • RussellH says:

      I thought that competition was supposed to drive down prices?
      Surely you are not actually saying that it pushes them up??
      🙂

  • Sam G says:

    Pre pandemic possibly Virgin/DL, at least the Miami flights do well on London O&D and perhaps with the force of Delta / AF / KLM FF programs and connections behind them they all might have worked. But in the current climate I just can’t see anyone operating them personally

  • Spaghetti Town says:

    Can’t see them losing any sleep over this, but what’s probably more concerning for them is the minimum amount of seats they need to operate!

  • kruggs says:

    BA / AA were forced to make 4 slots available previously due to the DoT ruling – 2xBOS, 1xDFW, 1xMIA. So basically no change.

  • Alex W says:

    So they have to give up 4 slot pairs, doesn’t sound like a lot, how many do they have in total?

  • Richard says:

    Is there any suggestion of when they have to surrender these routes by (assuming someone else wants them)?

    • Rob says:

      Deal kicks in June/July so presumably whenever. JetBlue will want Boston.

      • Cal says:

        Delta would surely be interested in Boston as well though? They have been building it back up into a hub for them

      • Jan says:

        Rob, you seem confident that JetBlue will want Boston, but what is to stop them flying it now? According to the below link, BA/AA have to already make 2xBOS flights available, but Jetblue hasn’t taken them. What am I missing in your analysis?

        https://www.acl-uk.org/wp-content/uploads/2017/02/BA-AA-IB-Trans-Atlantic-Joint-Venture-%E2%80%93-Slot-Release-Procedure-Winter-2017-18.pdf

        • Rob says:

          No idea what the case was then. However, JetBlue is now VERY keen on NY and Boston. It tried to get Heathrow slots released as the price for Air France KLM joining the Virgin / Delta JV. It is so keen that Delta is starting Gatwick to Boston and Virgin was due to launch Gatwick to New York this year purely as a spoiler.

          • Spaghetti town says:

            They can be as keen as they like, they won’t get the planes for the job until next year, and even then we don’t know what state air travel will be in

        • Chrisasaurus says:

          Perhaps they wanted another slot pair or two to make it viable?

    • marcw says:

      From what jetblue said, the current agreement finishes this year. The new agreement, when BA/AA would need to release slots commences in 2021.

      • marcw says:

        Sorry, not jetvlue, actually the CMA:

        “We therefore welcome the offer from BA and American Airlines to find a way of addressing the CMA’s concerns. Their suggested resolution has the potential to increase competition and deliver lower fares for customers, while also preserving the benefits that joint airline agreements offer passengers. We are acting now as the current commitments expire this year, but can review the agreement in the future if the market does not return to its pre-COVID state”
        Ann Pope, Senior Director, Antitrust at the CMA