American, oneworld Step Closer to Legitimacy with EU Approvals

(MoneyWatch)  It was a big day in the big D yesterday when the European Union offered its approval of the proposed joint venture between American Airlines (AMR), British Airways, and Iberia. In addition, the EU approved the merger between British Airways and Iberia, which is probably a bigger piece of news. Now, American and friends are one step closer to competing on a level playing field with the other alliances.

The Delta/Air France/KLM and United/Lufthansa joint ventures have deep roots stretching back for years. Even recently, those alliances have been broadened and strengthened. Meanwhile, American and the other oneworld members have sat on the sidelines, waiting patiently (or impatiently as the case may be) for approval allowing them to come together.

The US Department of Transportation gave the first sign of good news earlier this year when it gave tentative approval to the joint venture which would allow American, British Airways, and Iberia to collude on pricing and capacity over the Atlantic. Now that the EU has given its blessing, it's nearly impossible to imagine this running into any snags before final approval comes from the Department of Transportation. With Iberia and British Airways merging, this has the potential to eventually look a lot like the Delta/Air France/KLM deal (where KLM and Air France are jointly owned).

That all sounds well and good, but there is a lot of catching up to do. They can't even start to coordinate until final approval comes in, and it will take time to ramp up. But it should give them much better pricing power and that means better returns for the airlines.

Of course, it's that pricing power that caused the EU to be concerned at all. In the end, the EU gave some really light conditions to gain approval. First, the airlines have to give up a token number of slots in Heathrow and JFK. (We're talking single digits per day here.) Then, they have to agree to allow travelers on new entrant airlines in the markets of concern to actually earn and redeem miles in their frequent flier programs. It's goofy for sure, but it's not a deal breaker. There were a couple other minor things as well, but it was barely a slap.

There are those, on the flip side, who think this deal is the worst thing to ever happen to the airline industry. I'll give you three guesses on who is leading the charge against this and the first two don't count. That's right, it's Sir Richard Branson and Virgin Atlantic, the airline that likely stands to lose the most when the two behemoths become one for purposes of travel between London and the US.

Even Sir Richard has resigned himself to defeat, but you can be sure that he'll have his people watching this like hawks. The approval from the EU is good for ten years, so there's no question that the Virgin Group will be at the front of the fight when it comes back up again.

For now, however, Sir Richard should be focusing on how he's going to compete. American and British Airways have spent a lot of time dreaming and planning for this day. They're going to provide good competition over the Atlantic for the other two big alliances, SkyTeam and Star, but that means they'll have much greater control over capacity on the London-US routes. That's why the little guys like Virgin Atlantic are sweating.

Related:

• American and British Airways: Oneworld Rejoins the Living
• American and British Airways Still Waiting for Feds Antitrust Immunity Decision
• American and British Airways Apply for Antitrust Immunity

Image via Flickr user Roger Schultz