British Airways – Iberia merger and ATI approved by EU

In a move that will create the third largest airline in Europe, EU regulators have approved the merger of British Airways and Spanish carrier Iberia. The approval was expected for some time now and does not come as much of a surprise. The two carriers will continue to operate as distinct brands in their respective markets. No word on whether they will be combining their loyalty programs or which other back-office operations will be combined, though many are expected to be.

In addition to the merger approval the EU has also approved – with conditions – the ability for the new British Airways to operate with their USA-based partner American Airlines with anti-trust immunity (“ATI”). The ATI deal gives the OneWorld partners the ability to coordinate schedules, inventory and fares on transatlantic markets where the carriers operate, including the European Union, the United States, Canada, Mexico, Puerto Rico, Norway and Switzerland.

The approval of the ATI brings OneWorld into the same arena as the other two global alliances, SkyTeam and Star Alliance. Those two have recently increased their TATL ATIs (Alitalia just joined the SkyTeam group in the past couple weeks) so this move will have all three on a level playing field as they compete for much coveted traffic in the TATL market. But, as noted above, the approval does come with some strings attached.

Over the next ten years the OneWorld ATI members will have to cede airport slots at New York City’s JFK airport and also at London’s Heathrow or Gatwick airports. New entrant airlines looking to start service into London or Spain will also be guaranteed “favorable terms” for add-on segments on the BA or Iberia networks for onward travel once they get to Europe. From the EU Commission release:

Concretely, the parties offer to make available landing and take-off slots at London Heathrow or London Gatwick airports, at the entrant’s choice, on routes to Boston, New York, Dallas and Miami. The number of slots will allow one or more competitors to operate a total of 49 more return flights a week between London and the four affected destinations in the US.

On the London-New York city pair, the parties also propose to provide the competitor with slots at New York John F. Kennedy airport.

In addition, BA, AA and IB undertake to provide access to their frequent flyer programmes on the relevant routes, allowing passengers of new entrants approved by the Commission to accrue and redeem miles on the parties’ frequent flyer programmes.

The parties also propose to allow fare combinability and offer special prorate agreements in relation to the routes of concern, which would enable competitors to offer tickets on the parties’ flights and facilitate access to connecting traffic.

Neither of these approvals is much of a surprise. Other airlines and alliances have passed the BA/AA behemoth by in recent years in terms of coordination of operations and this move lets the two start to catch up. The conditions levied on the ATI are not all that burdensome, either. Giving up a total of seven daily slots in London isn’t too much of a burden on the carriers that control such a significant portion of the market there. The JFK slots are actually likely more of an issue for those carriers but they do have enough to make it work when the requests come in.

No word yet on whether AA and BA will be able to remove the limitations on their frequent flyer programs that preclude earning or redemption on flights between the USA and London on the other party or what other synergies they expect to realize. Still, this move definitely will give OneWorld a bit more leverage in the market.