American and British Airways Transatlantic Merger System
On July 20 the Department of Transportation bestowed final approval on the Joint Business Agreement between the U.S., UK, and Spain, and granted anti-trust immunity to Oneworld Alliance members that fly the North Atlantic: American, British Airways, Finnair, Iberia, and Royal Jordanian.
The ramifications are far reaching, but the key one for frequent flyers is that the DOT has in effect allowed a side-door merger between AA and BA. The two have long sought closer cooperation on the North Atlantic, but have been rebuffed by the Justice Department out of anti-trust considerations. Now the two carriers will be allowed to integrate their North Atlantic operations−not quite a marriage, but more like living together and sharing expenses while keeping one’s own name.
The Good: AAdvantage members will be able to redeem miles for BA flights from its 19 U.S. gateways, previously only allowed from BA’s Canadian and Caribbean gateways. BA Executive Club members will be able to do the same on AA from the UK. Members of both airline’s mileage programs will also be able to earn miles and elite benefits on each carriers’ trans-atlantic flights, currently not allowed.
AAdvantage and Executive Club members will also be able to work the award-chart discrepancies that exist between the two carriers. For example, a First Class ticket from the U.S. to Moscow costs 125,000 miles on AA; whereas it costs 195,000 on BA, a savings of 70,000 miles when booked through AA.
The Bad: One immediate effect should be a reduction in flights from the U.S. to London, as the two carriers will now be allowed to code-share. Why would AA continue to offer five and BA eleven non-stops daily (based on their Oct. 4 schedules) from NY to London, when through code-sharing they can cut the number of flights without showing a reduction on their schedules? Lufthansa and United, both Star Alliance members, have already pulled off this trick on Chicago-Frankfurt. Each offers two flights daily, but through code-share math, each lists four flights on its schedule. The same sleight-of-hand happens on Atlanta-Paris. Air France operates one flight daily and Delta two, but both show three flights on their schedules.
The Ugly: Just as the merger of Delta and Northwest led to an increase in prices, so too will AA and BA now be doing the tango. For example, a Business Class ticket last September from Minneapolis to London on Northwest (and the eight other airlines flying this route) was $2,675 for travel in mid-November. Now the ticket costs $3,138 across the board, almost $500 more.
In fact, we have already seen signs that AA, in the past an ardent fare warrior, has become less competitive and is keeping its Business Class fares more in line with BA’s. This summer most major carriers offered promotional Business Class fares to Europe. For example, a ticket from LAX to London was at $2,376 on ten airlines including such carriers as Continental, Delta, and United; AA’s fare was $2,776, $400 more.
SkyTeam and Star Alliance Members: The reduction in competition means you will pay more for a Business Class ticket in 2011. From Washington to London, BA charges $3,019, whereas United asks for $2,807; Chicago to London on BA is $3,050 versus United’s $2,952; Atlanta to London on BA costs $3,155 as opposed to Delta’s $2,940.