Antitrust Immunity Enables New British Airways, American Airlines, and Iberia Flights

The antitrust immunity agreement between American Airlines (AMR), British Airways, and a few other partners is now in effect, and the airlines are celebrating by launching new routes. While many argue that antitrust immunity is bad for competition, it certainly does increase the number of viable flights for the airlines involved, and that's a good thing. Here's why.

The announcement yesterday was that four new routes will be starting:

New York/JFK to Budapest (operated by American)
Chicago to Helsinki (operated by American)
San Diego to London/Heathrow (operated by British Airways)
Los Angeles to Madrid (operated by Iberia)

Admittedly, I don't understand why all of these routes are being added. JFK to Budapest, for example, connects American's JFK hub with Malev's Budapest hub. While Malev is a member of the oneworld alliance, it isn't part of the antitrust deal, so the connection here seems tenuous. But for the rest, I get it.

Let's look at Los Angeles to Madrid, for example. On one side, we have Iberia's main hub in Madrid. On the other side, we have one of American's focuses in the US (though admittedly, it hasn't seem like a focus lately).

Before antitrust immunity, Iberia could have started this flight hoping that it had enough feed from its Madrid hub to support it. It could also have hoped for decent traffic from an American Airlines codeshare at LAX, but that was it. Under antitrust immunity, things are different.

Now, Iberia can work directly with American and British Airways to coordinate schedules and set fares. They can jointly look at how much traffic they're taking over all their hubs and figure out what makes sense and what doesn't.

We don't know the exact times being proposed yet, but the airlines can all get together now to decide what works best. Part of this service will be filled with people coming from beyond Madrid, let's say from Barcelona or Rome. Those people can already connect over London on British Airways, so Iberia might look for alternate times to make for better schedules for travelers at different times during the day.

In addition, Iberia can look to American to draw passengers from around California who want to go to Madrid. The airlines can now collaborate to see which passenger flows have the most unmet demand and then work together to figure out how to best serve that group The airlines can also share pricing information and really work from that angle as well.

To see how this might work, we can look at Star Alliance members Lufthansa and Swiss along with United (UAL). Lufthansa owns Swiss, so this is a great comparison since Iberia and British Airways are now under a single holding company as well. Look at LAX to Europe during the winter schedule:

Lufthansa flies to Frankfurt at 3p
United flies to London at 5p
Swiss flies to Zurich at 720p
Lufthansa flies to Munich at 9p

As you can see, the airlines have now spread out their services to offer flights to Europe throughout the afternoon. So for people connecting beyond the hubs, there are a tremendous number of departure time options. It's a great offering for customers, and we can expect American and its joint venture friends to start looking at this similarly. The result will be better competition between American and the other joint ventures, but it will likely make it even harder for other competitors to break in. It's certainly a win with a tradeoff.

Related:

Photo via American Airlines

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