American Sends More Planes into Open Skies

By Trebor Banstetter, Fort Worth Star-Telegram, Texas

Nov. 6–An airline battle is brewing over Europe, and American Airlines is right in the middle of the fight.

A new aviation treaty, new competitors and rival airline alliances are challenging Fort Worth-based American’s lucrative business flying passengers across the Atlantic. For consumers, the shake-up could mean more service, more choices and lower fares.

For American, it may mean turning to a longtime partner, British Airways, to bolster its position in trans-Atlantic markets.

Here’s what’s happening, and how things might develop for the world’s largest airline and its customers.

What’s changing about airline travel to Europe?

Several factors have combined to shake up the U.S.-to-Europe travel market. The most significant is a treaty between the U.S. and the European Union, dubbed “Open Skies” and signed this year. It allows European carriers to fly to the United States from any country on that continent, and opens London’s Heathrow Airport, Europe’s busiest hub, to more service to the U.S. Currently only four airlines — American, British Airways, Virgin Atlantic and United Airlines — can fly between the United States and Heathrow.

Consumer advocates hope that the added competition will translate into cheaper airfares between the U.S. and Europe. Locally, D/FW Airport has already benefited, with American and British Airways adding nonstop service to Heathrow. Previously, D/FW’s London flights went to Gatwick Airport.

On the heels of that agreement, Delta Air Lines and Air France announced a partnership to share revenue and expenses on trans-Atlantic flights. Air France will give three of its coveted Heathrow slots to Delta, which that airline will use to fly to Atlanta. The partnership could mean billions of dollars in revenue for both airlines, analysts estimate.

American is also facing competition from two upstarts, EOS Airlines and MaxJet, which fly all-business-class airplanes from New York to Stansted Airport in London. Both carriers are aiming to draw the lucrative international business travelers who are the bread and butter of American’s service to Europe.

How has American responded?

American has taken advantage of the flexibility resulting from Open Skies to add new markets to its London service, including a flight from D/FW Airport to Heathrow. Previously, American flew from D/FW only to London’s Gatwick Airport. Gatwick is not an international hub, complicating connections beyond London.

The airline has also launched service from John F. Kennedy Airport in New York to Stansted to defend its turf against EOS and MaxJet.

“As of this next summer, we’re going to operate up to 20 daily round trips from the U.S. to London airports, so I think we’ll be a formidable competitor for anybody who enters into that market,” said Tom Horton, American’s chief financial officer, during a recent conference call with analysts.

Could American link up with British Airways to match Delta’s partnership with Air France?

American and British Airways are partners in the Oneworld alliance but are prohibited by antitrust law from cooperating on trans-Atlantic flights. The two airlines attempted in 1996 to win antitrust immunity from the Department of Transportation, but the bid fell apart after several years of negotiating when regulators demanded that the airlines give up a significant portion of their Heathrow slots. A bid in 2000 also failed to win approval.

But the new treaty, and Delta’s deal with Air France, has airline executives hoping that the government may allow a trans-Atlantic hookup between the two giant airlines without such punitive measures.

“We still feel like there isn’t a level playing field among the airline alliances,” said Henry Joyner, American’s senior vice president of planning. Joyner stressed that nothing is in the works between the two carriers, although he added that American is monitoring the situation and may choose to try a linkup again down the road.

Gerard Arpey, American’s chief executive, echoed those comments in last month’s earnings conference call. The Delta deal “gives us renewed focus on our relationship with British Airways,” he said, adding that “with the increased service at Heathrow, we’re going to have to see if that represents an opportunity for us to achieve antitrust immunity.”

Earlier this month, officials with British Airways indicated that they would like to strengthen ties with American but noted that no specific plans are under way.

What would antitrust immunity mean for customers?

It could mean more options for travel to Europe, because the airlines could stop overlapping flights and shift service to other times and destinations. “It would restore some customer choice that has gone away,” Joyner said.

It remains to be seen what a deal would do to fares. A reduction in competition could drive fares higher, and consumer activists have criticized past attempts.

Don Casey, who heads international planning at the carrier, argues that the influx of competition under Open Skies would offset any cooperation between the two airlines.

“The irony of the whole thing is that Heathrow is the most competitive hub in Europe,” he said.

How about for D/FW Airport?

D/FW has already benefited from Open Skies, with both American and British Airways announcing nonstop flights to Heathrow. An antitrust deal between the two airlines would allow them to coordinate their D/FW service, which could mean more flights to London or more options for departure times. It could also mean more coordination on connections from D/FW beyond Heathrow.

The airport recently announced new service to Amsterdam, operated by KLM and Northwest Airlines. Although that flight is unrelated to the Open Skies treaty, it signals the growing interest in connecting North Texas to European markets.

What would immunity mean for the airlines?

An antitrust deal would allow American and British Airways to cooperate on scheduling, marketing and other business functions on trans-Atlantic routes, and let them share expenses and revenue. They could eliminate redundant services and stop competing against each other in key markets. And it would give American and British Airways the same advantages that Delta and Air France enjoy.

Would it mean a merger of the airlines?

No. They would cooperate only on trans-Atlantic routes.

——

TREBOR BANSTETTER, 817-390-7064 tbanstetter@star-telegram.com

—–

To see more of the Fort Worth Star-Telegram, or to subscribe to the newspaper, go to http://www.dfw.com.

Copyright (c) 2007, Fort Worth Star-Telegram, Texas

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:AMR, NYSE:BAB, NYSE:DAL, NYSE:AKH, NASDAQ-OTCBB:OWLD, NASDAQ-OTCBB:NWACQ,