Monday, February 2, 2009

Slots and the Ongoing oneworld Application

Airport Coordination Limited (ACL), which is charged with coordinating slots at London’s Heathrow Airport, submitted answers last week to the U.S. Department of Transportation as part of the latter’s ongoing investigation into the pending alliance approval and antitrust immunity application for American Airlines, British Airways, and Iberia (all members of the oneworld alliance).  At issue is the availability of slots at Europe’s busiest airport for new entrants in the transatlantic market.  In its submission (Doc. ID: DOT-OST-2008-0252-3068), ACL reaffirmed that the secondary market remains the only viable avenue for determined new entrants to begin offering services on the transatlantic market, though "it is ACL's experience that new entrant airlines still need to be flexible about the timing of slots and accept commercially suboptimal timings."  ACL also stated that "[t]he ability of potential competitors [to the proposed alliance] to secure slots on the secondary market assumes that the competitors value slots more highly than the existing holders and any other potential user of the slots . . . such that redistribution of slots to new transatlantic services would be an economically efficient outcome."  Though the private nature of slot transactions did not allow ACL to provide exact figures on the going rate for slots in the transatlantic scheduling time windows, it did speculate "that slot values have [probably] fallen back from the high levels reportedly paid during the exuberant market of 2008" following the U.S./EC Air Transport Agreement.

The scarcity of slots at London Heathrow will no doubt factor heavily into the forthcoming DOT decision for the proposed alliance.  Two previous applications for an immunized BA/AA "oneworld" alliance were denied by the agency, in part due to the absence of an "Open Skies" agreement with the United Kingdom as well as the unwillingness of the carriers to surrender some of their Heathrow slots to competitors.  BA CEO Willie Walsh, while reportedly "confident" that the DOT will give the green light, is still not interested in relinquishing slots.  Unlike the last time around, the existence of an "Open Skies" agreement is not an issue and opposition from rivals (with the notable exceptions of Virgin Atlantic and Air France) has not played a role in this regulatory drama.  Industry analysts have pointed out that if the alliance is not approved, oneworld may collapse should its smaller Pacific partners choose to defect to the rival SkyTeam and Star alliances--both of which already enjoy varying degrees of approval and immunization.  If that happens, the DOT may have narrowed the competitive skyways in the name of protecting them.

While a final order from the DOT may still be months away, it is likely to impact the mood of the ongoing negotiations for a second stage U.S./EC agreement.  The UK, which publicly expressed dissatisfaction over the terms of the first agreement and has threatened to suspend traffic rights if the second stage fails to yield more favorable results, will not look kindly on its native carrier's transnational venture being once again snubbed by the DOT.  With the U.S. having very little to offer its European partners with respect to easing foreign ownership and control restrictions, any further jolt to the spirit of cooperation could have dire consequences.

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