DOT argues that immunity “would provide travelers and shippers with a variety of benefits, including lower fares on more routes, increased services, better schedules and reduced travel and connection times.”

To be honest, I’m not too surprised that the DOT approved the application. For one, Heathrow wasn’t opened up until the open skies agreement between the US and EU in 2007, so that was a reason to deny immunity that isn’t a factor anymore. Plus, with immunity given to the other two major alliances, DOT loses other reasons to deny the application. In fact, that seems to have helped oneworld’s case this time around, as according to DOT, immunity would “enhance competition around the world by creating competition with the existing Star Alliance and the SkyTeam alliance.”

What does surprise me, though, is the concessions that DOT is looking for – only four pairs of Heathrow slots. I was expecting a lot more (16 were requested last time). Two of those slot pairs are earmarked for Boston-London service, as DOT sees that as a highly competitive overlap market. (Actually, Dallas is more competitive but DOT thinks the market isn’t big enough for another carrier.) As a New Englander, I’m excited to see what carrier (if any) picks up that Boston service – it’s a route that has been tried and dropped by both United and Delta.

I was also a bit surprised that the DOT did not utilize carve outs – specifying routes where the carriers could not cooperate and would compete with one another. According to the DOT, “The recent fundamental shift in the character of alliances – towards integrated joint ventures – has made us more skeptical about the efficacy of carve-outs, especially in the context of joint ventures….We determined that the carve-outs would detract from the potential benefits of the alliance by introducing inefficiencies, and in some areas, impediments to pro-competitive cooperation.”

Of course, the folks over at Virgin Atlantic aren’t exactly pleased with this announcement. Soon after the news came out, a strong-worded statement from Richard Branson was released. “This preliminary decision beggars belief….Four slot pairs is a complete joke and those responsible for this decision should hang their heads in shame….Millions of trans-Atlantic travelers will be adversely affected if the alliance receives final approval. In my personal opinion, this draft decision is a real kick in the teeth for consumers and they will be paying the price for it for years to come,” remarked Sir Richard.

So, where do we go from here? Well, there are now 45 days for objections to be submitted. (I’m sure we’ll see one from Virgin!) Then, there are another 15 days to provide responses to objections. Once that’s over with, the DOT will issue a final ruling soon after. It will certainly be interesting to read the comments submitted.

Personally, I think oneworld will end up getting immunity, though I wouldn’t be surprised if DOT increases the number of Heathrow slots that must be given up. American has said in the past that they don’t think any slot divestitures at Heathrow were necessary, but to be honest I think oneworld should just accept this deal (provided the number of slots doesn’t go up too much) and move on.

But, overall, a good week for oneworld- this is a big step for them in Europe, and at the same time JAL decided to stick with the alliance, and American and JAL have already applied for immunity (possibly more on that this week).

Photo Credit: Iberia.

Right now, Iberia has a piece and weight system for baggage. The weight system is mainly used on short-haul flying. For example, the allowance for European flights is 23 kg (about 50 pounds). One can check a few bags as long as the total weight doesn’t exceed 23 kg, and excess baggage is charged by the kilogram (€5/kg for short-haul flights). On most long-haul flights, a piece system is used. So, if I wanted to fly from Boston to Madrid I’m allowed two free checked bags, both of which need to be under 23 kg. If I have a third bag, it’s €150 at the airport, or €105 online.

Well, the weight system is going out, and Iberia is now going with the piece system throughout its network. For both long and short-haul flying, economy passengers (except full-fare economy and company rates on long-haul flights) will only be allowed one piece of free checked luggage. The fee for the second bag is €50 online, and €60 if paid at the airport. That price is pretty much in-line for long-haul flights, though it seems a bit high for the shorter flights, I think.

If you’re in business class, you’ll still get three free bags on the long-haul flights, and your allowance on shorter flights is going up. Before, the allowance was 30 kg total, but with the new policy, two bags (23 kg each) are allowed.

Like nearly every other airline, Iberia is giving extra perks to its elite members here – so they’ll get an additional bag over the allowance for their booked fare.

An exception to the policy is for travel to Nigeria, Senegal, or Equatorial Guinea – the free allowance remains at two bags.

One note for American travelers – no need to deal with the exchange rate – so the fee for a second bag on a transatlantic flight would be $50, not 50 euros.

Meanwhile, Iberia says this new policy “will reduce the laden weight of aircraft, and hence fuel consumption and CO2 emissions.” I’ll give them points for trying to make this look green. Have any of the US airlines done that?

Photo credit: Chris Weyer. Used with permission.

Under the terms of the deal, a new holding company called TopCo, which would be incorporated in Madrid (though the financial headquarters would be in London), will be lead by current British Airways chief Willie Walsh. The BA shareholders will take a 55% stake, with Iberia shareholders holding the balance. The company will own two operating companies, one for each carrier.

The main benefit for customers that BA/Iberia are pushing (see the presentation on the deal here) is the combined route map of the two airlines:

Service to the South Atlantic was especially pushed, as the merged airline will have the most South Atlantic destinations of any European airline.

The press release also noted that “the group’s network strategy will be developed in a way that reflects the importance of both
London and Madrid hubs. There will be a balanced long-term development of the networks served from each of the Madrid and London hubs and there will be a reasonable division of opportunities between the two networks.”

It is also being expected that their will be approximately €400 in annual savings:

This isn’t a done deal – there are a few steps that need to happen. The merger agreement has to be signed, which is expected to happen during hte first quarter of next year. The deal also requires government approval. According to the current timetable, the deal is expected to be presented to shareholder in November 2010, with the deal closing soon after if it is approved.

Of course, Ryanair had to share its thoughts in its usual hilarity in a press release titled “Ryanair Welcomes BA’s and Iberia’s White Flag.” Ryanair head Michael O’Leary said:

The merger of BA and Iberia is like two drunks trying to prop each other up; both have reported large losses, both are facing a winter of industrial action and both charge high fares and fuel surcharges…this merger will be great for Ryanair’s growth and we look forward to welcoming many more millions of BA’s and Iberia’s passengers as they switch to Ryanair’s low fares flights.

I’m sure Virgin will have their own things to say as well.

Anyway, this is a big deal. Let’s see how it proceeds.

Further to recent market speculation, British Airways confirms that the British Airways and Iberia Boards are holding separate meetings today, 12 November, to consider a potential transaction. However, no decisions have been taken and, at this time, there can be no guarantee that a transaction will be forthcoming. A further announcement will be made in due course, if appropriate.

Photo credit: Chris Weyer. Used with permission.

Iberia currently flies from Madrid to Sao Paulo and Rio de Janeiro, and according to a news release will be able to “add its code to Gol flights from Rio de Janeiro and Sao Paulo to 13 Brazilian destinations: Belo Horizonte, Brasilia, Curitiba, Florianopolis, Fortaleza, Foz do Iguaçu, Goiania, Manaus, Natal, Porto Alegre, Recife, Salvador de Bahia and Vitoria.”

The airlines are also considering an arrangements for passengers to earn points on each others flights.

This move makes sense as TAM is joining the Star Alliance next year, so it’s good for Iberia to have a partner in this region. Of course, one could also wonder if Gol would ever be interested in joining Oneworld.

One major issue for airlines worldwide has been adapting capacity – and Iberia seems to be doing a decent job of this, as it cut ASKs more than RPKs, resulting in a gain in load factor by 1.5 points. The airline says that “further capacity reductions are planned, amounting to 6 per cent for the year, beyond the previous target of 4.3 per cent.”

Iberia has already trimmed its fleet, and ended the second quarter with 15 aircraft less than it did at the same time last eyar. More steps on the fleet side are being taken, as Iberia reports that ”three more short and medium-haul aircraft are to be grounded, adding to the five already withdrawn from service, while delivery of a new long-haul Airbus A-340/600 has been postponed.” Iberia is also making its current fleet fly more often as utilization, is up 4.4% to 10.5 block hours per day.

Operating revenues per ASK were down 16.5%, though operating expense was also down, by 6.7%. One area that is especially weak is cargo, with revenues down 34.6% paired with a 15.7 point decline in load factor.

There will be further labor pain as well, as the airline says there will be “new staff cuts, additional to the 4.7 per cent reduction in the second quarter.”

I’m very excited to watch what happens in the Spanish market in the future. In the past few years, a couple of new LCCs have entered – Clickair and Vueling. Iberia had a 20% stake in the former. These two airlines have merged under the Vueling name. (On a side note, it is sad to see the Clickair livery to go away, which I think is one of the nicest around.) Iberia now owns 45.85% of Vueling, and the parent company of Air Nostrum, which does regional flying for Iberia, owns 4.15%. So, now Iberia has a major stake in one of its competitors. Interesting!

Photo credit:

http://www.flickr.com/photos/spotterjohnson/ / CC BY 2.0

There will be some capacity cuts. While the airline won’t be dropping any cities from its route map, there will be some reduced service. As a result, five A320s will be taken out of service.

The airline is working on some measures that is says will reduce losses by 110-125 million euros. These include temporary layoffs, a hiring freeze, cutting back on rental space, etc. The airline also announced a decrease in investment spending on projects like such as renovation projects by about 80-90 million euros. But, the airline does say that:

However, all investments aimed at improving services to customers will continue, such as the spending of 7 million euros to improve VIP lounges at the Madrid hub and elsewhere. The renovation of tourist class on long-haul aircraft will also go ahead.

I do hope Iberia knows what it’s doing with that one. While I’m all for trying to improve the customer experience, I wonder if these improvements will have any effect on revenues. (Such as if the refurbished VIP lounges will help attract more premium passengers.)