The Department of Transportation just conditionally approved a joint venture between Delta and Aeromexico. They’ve approved Delta and Air France KLM. They’ve approved United and ANA and also United and Lufthansa. American Airlines has a joint venture with British Airways, Iberia, and Finnair across the Atlantic and with Japan Airlines across the Pacific. They’ve filed for a joint venture with LAN.
Joint ventures are the new alliances. The CEO of British Airways and Iberia parent IAG says alliances are dead. Joint ventures which receive anti-trust immunication allow airlines to coordinate schedules and pricing and share revenue on specific routes.
Although DOT wasn’t ready a year ago to approve an expanded joint venture between American and Qantas and it was possible they might ask for certain concessions in exchange for doing so (they’re asking for slots from Delta and Aeromexico at New York JFK and Mexico City in exchange for approving theirs) history suggested that American and Qantas would be able to move forward.
However — although Australia and New Zealand authorities already signed off a year ago and although DOT allowed a joint venture between US carrier Delta and Australia’s Virgin Australia — the US Department of Transportation is blocking the expanded cooperation between American and Qantas (HT: One Mile at a Time).
- Coordination between American and Qantas is bad for competition.
By combining the airline with the largest share of traffic in the US-Australasia market with the largest airline in the United States, the proposed alliance would reduce competition and consumer choice.
- There’s not much consumer benefit to the arrangement, because American and Qantas don’t plan to grow service together more than DOT expects to see organically and because “many public benefits from customer service coordination could be obtained through traditional arms-length cooperation such as codesharing.”
There’s a bit of a logic problem here. It’s absolutely true that Qantas and American can codeshare now, they are partners in oneworld together, and indeed as long as you’re traveling on a single ticket you can through-check bags. American identified reciprocal award redemption as a key benefit of the joint venture, and they can do that now. However that undercuts the DOT argument that linking up the largest operator in the market with the largest airline in the U.S. since as the DOT observes, they are already linked.
DOT wanted to know how much service would grow under the expanded joint venture. Ultimately DOT believes the answer from American and Qantas isn’t greater service growth — which they would use to justify approval — than we’ll see anyway.
The ultimate argument is that there’s no consumer benefit if there aren’t more flights, and if there’s only the same flights DOT expects then coordinating schedules and pricing means less competition than they’d otherwise expect.
American has already added service to Sydney which they’ve said they will cut if the joint venture isn’t approved. Qantas added San Francisco service, which they’ve said they’ll cut. And American has launched service to Auckland.
They even improved service on the Sydney and Auckland routes, prompted by the joint venture and Qantas customers who expect something better than what US airlines offer.
Basically, DOT doesn’t believe them and thinks that American should clearly be growing its presence in the region with or without a joint venture. American plans to file an appeal.
Leaving aside that DOT has approved other similar deals, even between the US and Australia, it seems strange to say the new proposed service isn’t enough — that they believe the new service would happen anyway — when it hadn’t happened on its own before. The DOT is certainly entitled to take novel positions, subject to review by the courts. And by the time a decision is rendered in any appeal it may be a new administration’s leadership in place. It’s not just Delta that’s looking forward to a Trump administration.