Rivals Threaten to Tear Apart AMR's "oneworld" Vision
AMR, the corporate parent of American Airlines, continues to jettison unprofitable routes and shift more traffic capacity to hubs in Dallas/Fort Worth, Chicago, Miami and New York, along with the city of Los Angeles. That said, AMR's competitive global presence could be severely impaired -- think loss of feeder traffic -- if two cornerstone "oneworld" carrier initiatives collapse.
AMR and fellow partners British Airways and Iberia are looking to expand their existing oneworld pact to include coordinated schedules and prices -- figuring that jointly serving destinations will create operating efficiencies and is permissible under the liberalized flight policies of the 2007 U.S. - European Union "Open Skies" agreement (intended to deregulate transatlantic markets and permit airline operators to enter into cooperative arrangements, including codesharing, franchising, and leasing). In September 2009, the European Union issued a "Statement of Objection" related to the proposed joint business proposal. EU regulators argued, among other things, that without remedies, the joint plan would violate anti-trust rules on restrictive business practices, according to a recent Reuters' release
Sir Richard Branson, the founder and President of rival airline Virgin Atlantic, said in a letter to President Barack Obama in August: "BA and AA are seeking antitrust immunity because it will enable them to squeeze existing Heathrow-US competitors off key routes. If BA/AA win, it will be an unprecedented loss for consumers -- prices will increase as the monopolists wield their power without competitive pricing pressure and reduced competition inevitably leads to worse customer service."
AMR and British Airways have twice tried and previously failed to secure antitrust immunity to deepen their existing alliance, withdrawing those past applications when EU regulators asked the alliance to give up lucrative landing and takeoff slots at London's Heathrow Airport. AMR chief financial officer Thomas Horton remains hopeful, telling analysts on the third-quarter earnings call the statement of objection from the EU was anticipated, and that the company was "in discussions with [EU regulators] regarding their findings and to demonstrate the public benefits of [our] plan."
In the meantime, on this side of the pond, the carriers will continue to seek anti-trust immunity from the U.S. Department of Transportation. Curiously, existing evidence suggests the fears of regulators may be unfounded. The first-stage of the "Open Skies" agreement -- which took effect in March 2008 -- has resulted in increased competition to AMR in many EU destinations, including Heathrow, where the company has lost market share, according to AMR regulatory filings with the SEC.
Meantime, on the other side of the globe, AMR could find its Pacific routes imperiled, as financially troubled oneworld alliance partner Japan Airlines (JAL) struggles to stay solvent. Rumor has it that American rival Delta Airlines, which is seeking more gates at Asian airports to grow its international footprint, would be willing to infuse more than $550 million into JAL to help it stay aloft -- in exchange for the largest Japanese airline operator's defection from oneworld to Delta's Skyteam global partnership.
Keeping JAL on board at AMR's oneline alliance risks straining an already leveraged balance sheet for AMR if it took an equity stake. Losing JAL would spare AMR's finances, but at what cost? JAL is oneworld's second biggest revenue generator and its leaving would disembowel oneworld's Asian coverage -- the fastest growing region for air travel, according to Dow Jones Newswire.
The biggest prize for the winner of JAL would be access to China, Asia's biggest market (in terms of daily air traffic). Talks between JAL and Delta, halted in September as a Japanese task force began work on untangling JAL's balance sheet, have allegedly resumed, sources close to the negotiations told Associated Press on October 20.
Being grounded because of "bad weather" on either side of the globe, in my opinion, would undermine the longer-term profitability, reach, and relevance of AMR as a significant global carrier. Fasten your seat belts, for as Bette Davis said in the movie All About Eve, "it's going to be a bumpy night."