The United States Department of Transportation (DoT) announced tentatively approving Aer Lingus to join the oneworld alliance’s Atlantic Joint Business Agreement (AJBA) that American Airlines (A1G) (AAL), British Airways, Finnair Iberia, and LEVEL are already a part of. All aforementioned airlines are part of the oneworld alliance. In joining the business venture fully, the Irish airline would integrate the planning, pricing and sales activities with other alliance and AJBA members.
In order for the DoT to fully green light Aer Lingus’ plans, all involved parties must continue to comply with regulations, initially laid out by the European Commission (EC) in 2010. The investigation was continued by the United Kingdom’s Competition Market Authority (CMA), since the joint venture covers six routes, five of which are in the UK, in addition to Brexit.
Non-existent competition?
While compliance with slot remedies at London Heathrow Airport (LHR) was one of the reasons why the DoT approved Aer Lingus’ newest business development, the competition was another.
According to the department’s analysis, the Irish airline had a 44% share of the marker between the US and Ireland prior to the outbreak of COVID-19, specifically during Q1 2019. If it were to join the joint venture, the joint-market share would grow to 60%.
“However, with the combination of Aer Lingus with the Existing JB carriers, four carriers remain in the market, with the second-largest carrier being Norwegian, a low-cost carrier (LCC) that has shown an aggressive ability to challenge established carriers in the transatlantic market with its low-fare pricing model,” argued the DoT.
Norwegian, already prior to the current coronavirus outbreak, ended transatlantic services from Ireland in August 2019. The low-cost carrier cited the fact that the Boeing 737 MAX groundings, coupled with high wet-lease rates to replace the grounded aircraft, were the reasons why it was doing so.
The US government agency further argues that with the introduction of such aircraft as the Boeing 737 MAX and the long-range derivatives of the Airbus A321neo the competition will only intensify. In addition, “the presence of an LCC with substantial market share pre-COVID, the relatively low barriers to entry that will be further reduced, and the presence of three other competitors to Aer Lingus,” continued the DoT’s competition analysis.
JetBlue (JBLU) could be used as one example. The New York-based low-cost carrier has massively increased its presence on the East Coast and has set its eyes on launching flights from New York to London, its first entry into the transatlantic market. Utilizing the long-range A321neo derivatives, hints of services to other cities are also seemingly there. However, the airline has had an airline partnership agreement with Aer Lingus since 2008. In 2013, the partnership was expanded to a codeshare agreement, further streamlining the experience for both airlines’ customers.
United Airlines, which had a 12% market share in Q1 2019, also has the A321XLR on order. That aircraft was already due to arrive in 2024, with a possibility of it being delayed due to the current crisis, dampening demand for international air travel and bloating airline companies’ debt levels.
Big picture
The impact of Aer Lingus’ inclusion into the Atlantic Joint Business Agreement (AJBA) might be too marginal to push back the plans of including the Irish airline into the joint venture.
Undoubtedly, Aer Lingus has a strong brand presence in the Irish airline market. While that is a thing to consider, the US-based authorities highlighted the fact that the company only carries 3% of the total passenger between the United States and Europe.
“With a relatively small market share, and absent the loss of any further independent competitors with a material share of U.S.–Europe traffic, we do not expect the Proposed JB to impact competition significantly at the broader U.S.–Europe level,” concluded the DoT. There are benefits that should not be ignored as well, including potentially lower prices, lower costs for the airlines and a broader network for passengers, as it usually happened when joint ventures formed, as noted by the DoT.
“Our analysis indicates that adding Aer Lingus to the Existing JB will result in public benefits that are greater than any potential competitive harm stemming from the Proposed JB,” concluded the report.
Even then, the potential competitors to Aer Lingus or even Norwegian, have set their eyes on a prize elsewhere. The aforementioned JetBlue (JBLU), in response to the developments, pleaded with the authorities to look at the fact that IAG’s slot portfolio at London Heathrow Airport (LHR) was only growing with the addition of Aer Lingus to the group.
“JetBlue (JBLU) urges DOT to reallocate slots to enable JetBlue’s (JBLU) entry into U.S.–LHR markets,” the company stated in its publicly filed response on September 18, 2020. The Aer Lingus question was hidden behind the fact that the low-cost carrier was looking to acquire slots at LHR. So far, the airline has failed to do so – ACL International, a slot coordinator overlooking many airports across the globe, indicated that JetBlue (JBLU) acquired slots at London-Gatwick (LGW) and London-Stansted (STN). ACL is yet to publish data on LHR slot allocation for the Summer 2021 season.
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But the DoT is aware of the fact that many low-cost long-haul carriers, including Norwegian, have struggled. The Norway-based company is seemingly the last airline rebelling against the old-fashioned model, and even then, it is on its last breath. After the Norwegian government denied to grant any more state aid to the airline, its own chief executive officer (CEO) warned of an impending collapse.
To not distort the very lucrative trans-Atlantic market in the long-term future, the DoT recognized that the track record of the low-cost model on flights between Europe and the US “remained unclear.” Thus, it proposed to review the approval of antitrust immunity in five years’ time from the date that it would come into effect.
“We believe a five-year review is necessary in light of the concerns raised in the competitive analysis section of this Order, and the uncertainty regarding critical segments of the transatlantic competition.” The current COVID-19 crisis has not helped airlines either, added the DoT, which might also affect Aer Lingus and the AJBA member airlines to “to make necessary investments, as well as to realize some of the claimed benefits” of the proposed joint venture.