American and British Airways: Oneworld Rejoins the Living

(MoneyWatch)  Just a couple weeks ago, I was starting to write the obituary for the oneworld alliance. With Japan Air Lines looking to defect to SkyTeam and the British Airways/American (AMR) tie-up still sitting in limbo, things were looking just awful for the number three alliance behind Star and SkyTeam. Now it looks like they're back in the game, and we're finally seeing the lines being drawn all over the map to create three mega competitors on a global scale.

So what is it that revived oneworld? A couple things, but most importantly, American and British Airways received news that the DOT has tentatively approved their joint venture after many years. If the EU soon does the same, there will be a lot of happy suits in Dallas and London. Last week, the alliance received more excellent news when Japan Air Lines decided to stick around. This past Friday, American and Japan Air Lines submitted an application for antitrust immunity for their proposed joint venture. That's likely to be approved.

We can argue about the impact this will have on Heathrow access and competition in specific markets, but let's focus on the bigger picture. This move will effectively seal the deal when it comes to three truly global alliances. Sure they've been alliances in name and limited benefits for a long time, but in the last year, the airlines in these alliances have grown much, much closer via joint ventures.

Why do these joint ventures matter? They're about as close to a merger as a US airline and a foreign airline can get thanks to ownership laws. Simply, the airlines in these joint ventures pool the revenue on all their flights in a certain geographic area and split it up. So American will theoretically no longer care if a passenger flies on its own airplane or on one of BA's, because the revenue is the same.

With a joint venture comes antitrust immunity, and that will allow the airlines to coordinate on capacity and fares. American and BA will cease to compete over the Atlantic and will instead become true partners. Like I said it's a virtual merger, and there are a growing number of them around.

The long-standing joint venture between Star Alliance partners Lufthansa and United (UAUA) was recently expanded to include Continental (CAL), Air Canada, and a few other European carriers. Over the Pacific, United, Continental and ANA just applied for approval for a joint venture as well. SkyTeam, though a late bloomer, has been on a roll lately as well. Delta (DAL), fresh off its acquisition of Northwest, and Air France/KLM have strengthened their ties with their joint venture over the Atlantic. While they must have been sorry to lose their shot at Japan Air Lines, the alliance still has a strong presence in Japan with Delta's Tokyo hub. It also has excellent access to North Asia via its member, Korean Air, an airline which was probably more than happy to see JAL walk the other way.

With those two very strong alliances forming into even stronger entities, it is good to see a third, oneworld, ready to take on the challenge as well. Better to have three strong alliances than two, from a competition perspective.

For fliers, there is the potential for some good and some bad here. Any time you eliminate competitors, you run the risk of seeing higher fares. But this industry has needed rationalization for a long time. On the other hand, this immunity which allows for full schedule and fare cooperation will allow the participating airlines to create better connections around the global network. It should become even easier to reach just about any place on earth as these alliances solidify.

Now we just need to wait for the EU to rule, and I imagine the Europeans will face some real pressure to get it done now that the DOT has approved the deal. A new round of further open skies talks will start soon, and the DOT made it clear that this deal was deeply tied to open skies.

Assuming the EU approves the deal, the battle lines will now have officially been drawn. The maps have been carved up, and it will be fun to watch competition on a global scale instead of on the regional scale we've seen for many years.