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Why the Competition & Markets Authority won’t renew the AA / BA transatlantic JV until 2026

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2020 was to be an important year for British Airways and American Airlines as their transatlantic joint venture (together with Finnair and Iberia) was up for renewal with competition regulators.

It’s difficult to overstate just how important this joint venture is for both BA and AA. London to New York brought in revenues of over $1 billion for BA alone in 2018.

American Airlines is likely to earn a similar amount from the route, as all transatlantic profits are shared proportionally between British Airways, American Airlines, Finnair and Iberia.

And this is just one of the routes covered by the joint venture …..

American Airlines British Airways transatlantic joint venture

How do Joint Ventures work?

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 (and soon Aer Lingus) receive for selling flights between Europe and North America.  This money is then shared out between the airlines using an unknown formula.

Clearly, this removes most incentives for competition between the airlines.  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.

For obvious reasons, joint ventures like this must be approved by competition regulators. In addition to revenue sharing, JVs allow airlines to co-ordinate schedules and pricing.

American Airlines British Airways transatlantic joint venture

The AA/BA Joint Venture is up for renewal

The transatlantic Joint Venture was originally approved in 2010 for a ten year period. In 2018, the Competition & Markets Authority began its investigation into a possible renewal.

In May 2020, it published its provisional findings and found that there was not sufficient competition on select routes between Europe and the US.

The CMA proposed that that the joint venture would have to surrender slots if a competitor wished to launch flights to selected destinations. These included Boston, Dallas, Miami and Philadelphia.

If no other airline wanted to launch flights to these destinations then the joint venture would have to fly a minimum required number of seats per year on the routes. It could not cut capacity in order to force up fares.

British Airways joint venture to USA CMA

This plan has now been junked

Given the disruption caused by covid, the Competition & Markets Authority extended the joint venture in September 2020, for another three years until March 2024.

It felt that no long-term predictions could be made based on 2020 schedules and that it needed to let the aviation industry settle down again, hence the 2024 extension.

The new plan assumed a gradual airline recovery from 2021 onwards. Unfortunately that never materialised, with UK/US flight numbers actually lower in 2021 than 2020.

The Competition & Markets Authority has therefore decided to extend the interim measures by a further two years until 2026:

“Due to the continued impact of the coronavirus (COVID-19) pandemic on the aviation sector and the fact that material recovery is taking longer than was anticipated in 2020, the CMA wants to ensure that the remedies made available under the 2020 Interim Measures continue to be available for 2 additional years. As a result of these unprecedented circumstances, the CMA is not in a position to complete its investigation in advance of the expiry of the 2020 Interim Measures in March 2024. A tender process will take place in autumn 2023 for the remedy slots for the additional 2 years.”

Current ‘remedy’ flights operated by Delta Air Lines and Virgin Atlantic to Boston, Dallas and Miami will continue for an extra year until March 2024. United took over the second pair of London – Boston remedy slots last year. A tender will soon go out to see which airlines wish to bid for BA and AA slots to operate competing Boston, Dallas and Miami routes until March 2026.

Delaying the decision for a further two years will let British Airways and American Airlines off the hook in the short term. In the medium term, the deferral is more of a threat. The CMA will come down harder if it looks like competition on transatlantic routes has reduced.

Oddly, British Airways and American Airlines will be hoping that JetBlue and Norwegian 2.0, AKA Norse Atlantic Airways, succeed with their new transatlantic services. It will show that new entrants can enter the transatlantic market and that BA/AA – together with the Virgin / Delta joint venture – are not a block on competition.

You can read more on the CMA website here.

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Comments (37)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • dougzz99 says:

    JBV works for me. I get free choice between 4 airlines which hugely increases the routing options for my trips west. It’s not like anyone else is under cutting the AA/BA pricing. Transatlantic flights seem priced more than acceptably to me, I paid around £500 in 1984 for London/Dallas NYC/London economy return.
    More choice all crediting to BAEC.
    Out of interest what would the people that think the JBV is a cartel expect to see from it’s demise?

    • Rui N. says:

      It’s not that people think the JVs are a cartel. It’s acknowledged as much by the competition authorities.

      • dougzz99 says:

        Fair enough, but the question remains, what would the demise bring to passengers.

        • Rui N. says:

          More competition.

          • BuildBackBetter says:

            Race to bottom on fares will lead to more losses and airlines shutting down.
            Best example – look at India – how many carriers have folded in last 2 decades competing purely on fares.

          • dougzz99 says:

            With Rui’s answer I was reminded about an old joke about IBM, but too much to write. Not sure whether competition means price or much more than that. If I look at a random return in business to NYC in July the difference between BA/AA/Delta/Virgin/United is 0. Google flights 4th July to 11th June, and the price is almost universally £3781. Would unwinding BA/AA change this, I don’t know, but clearly from my experience with the US over the years there’s not much price differential between the various supposedly independent players. The real differences come from finding the right starting point.

  • riku says:

    the headline is wrong. if the JV was due to expire on a date and the date is changed to be several years later then they have effectively “renewed” it. If they did not renew it then it would expire on the old date and not be in effect anymore.
    If my car insurance expires next month and I renew it in 2025 then I would have no car insurance between next month and 2025.

  • David says:

    Trying to understand the economics of the airline industry, isn’t there a point that any minimum seat requirement to, say, Dallas will have little impact on fares between LHR-DFW? I’m guessing that AA will be quite happy to feed their DFW network with however many connecting passengers, that they could restrict seat numbers for passengers whose final destination is Dallas, and therefore keep fares high?

  • Daftboy says:

    We often see comments lamenting that these JV arrangements are anti-competitive, which is true in the pure sense. But TATL travel is still pretty cost competitive for the consumer – if I look for flights London to New York over the June bank holiday weekend, I see Economy options from £360 indirect, or £430 direct – that’s only one data point, but that’s fairly reasonable in my book. Throw in the frequent business class sales we see across all the alliances and the market out of London feels like it has plenty of choices.

    (I realise not all destinations will be like NYC with so many competing options)

    • BuildBackBetter says:

      The Atlantic is probably a unique market suited for JVs, with multiple carriers and routes with high demand on both sides. On Asia routes the ME3 keep the prices low but BA has pricing power as it’s direct most often.

  • PeterK says:

    At least 4 more years of sky high prices LHR-Dallas!

  • Nun says:

    The sentence about them wanting JetBlue and Norse to succeed is interesting. I think it means AA/BA won’t try to underprice them, so we’ll have high fares even with the additional flights added.

This article is closed to new comments. Feel free to ask your question in the HfP forums.

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