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American, BA Warned By EU Over Proposed Tie-Up

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Oneworld alliance partners American Airlines, British Airways and Iberia face fresh European Union antitrust hurdles as they look to extend their pact to include coordinated schedules and prices.

The airlines had planned to deepen the pact to take advantage of the US/EU "Open Skies" agreement, with the focus on routes between the United States, Mexico, Canada, the EU, Norway and Switzerland, but European Union regulators said the latest plan may violate antitrust rules on restrictive business practices.

Alliances are seen as a lucrative alternative to mergers and large-scale investments. The three carriers have applied for US government antitrust immunity for their trans-Atlantic pact.

The European Commission, which in April launched a probe into both the three Oneworld members and the Star Alliance, said it had sent a charge sheet to the three Oneworld members.

"The Commission's statement of objections concerns agreements... regarding the coordination of the parties' commercial, operational and marketing activities in relation to passenger traffic on transatlantic routes," the EU executive said in a statement.

Price-fixing is illegal under EU antitrust rules.

The Commission may be concerned that the alliance could monopolize certain routes and lead to fewer flights for some destinations, said antitrust lawyer Martin Bechtold at Allen & Overy.

"What happens in these alliances is that the parties agree to jointly serve destinations, so for example offering one flight instead of three. Their argument would be that this is not restrictive and this creates efficiencies," he said.

"It appears that the Commission has so far not been convinced that the efficiencies are great," Bechtold said. He said allowing rivals to offer a similar service or join their bonus programs and giving up airport slots may address competition concerns.

British Airways, American and Iberia said they were ready to cooperate with the Commission and look for remedies.

"We look forward to the opportunity to address and overcome the EU's concerns, especially given the substantial benefits for consumers that would result from our trans-Atlantic joint business," AMR said in a statement.

Rival airline Virgin Atlantic said the antitrust concerns were justified.

"This alliance between British Airways and American Airlines is a monster monopoly which, if given the go-ahead, will allow these dominant carriers to increase their stranglehold at Heathrow by setting prices and agreeing schedules," Virgin's CEO, Steve Ridgway, said in a statement.

The Commission said it was still investigating the four Star Alliance members' (Air Canada, Continental Airlines, Lufthansa and United Airlines) current trans-Atlantic cooperation and their planned four-party tie-up as well as a proposed pact between SkyTeam members Air France-KLM and Delta Air Lines, which merged with Northwest last year.

The airline industry is expected to post USD$11 billion in losses this year, with weak passenger and cargo demand denting revenues, IATA said last month.

(Reuters)