The United States Department of Transportation (DOT) has granted Aer Lingus tentative approval to join American Airlines, British Airways, Iberia, and Finnair’s transatlantic joint venture. While the Irish carrier is not a member of the oneworld alliance, it will be closely aligned with the aforementioned carriers for close transatlantic travel coordination.
The DOT green lights Aer Lingus’ entrance
Joint ventures have grown more common in the last few years. Airlines from Delta to American Airlines have deepened existing– and new– partnerships across the pond to better compete on one of the most lucrative routes in the world. Aer Lingus, while it is fully owned by IAG, the parent company of British Airways and Iberia, was never fully involved in the joint venture agreement.
After a full evaluation, the DOT concluded that it would not necessarily be adverse for Aer Lingus to join the joint venture partnership.
Joint venture agreements allow airlines to operate on a metal-neutral basis. Airlines share the costs and revenues across these routes while also offering through-ticketing of baggage and extensive connecting opportunities on both ends of the pond.
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The geographic scope of the alliance is transatlantic services between North America and Europe. Aer Lingus flies to up to 14 destinations from Ireland in the United States. With a hub in Dublin, the carrier also offers connections to 47 destinations in Europe, including 12 unique European destinations that American does not currently market services to. Aer Lingus also only carries about 3% of travelers between the United States and Europe, so it is not a massive carrier in this market that would give the oneworld carriers serving this route a significant share of the market.
At 44%, Aer Lingus is the largest operator solely between the United States and Ireland. With the joint business partners, that will rise to just under 60%, though other carriers will continue to serve the market. Just after Aer Lingus’ 44% market share is Norwegian at 12%, United at 12%, American at 11%, Delta at 10%, British Airways at 4%, and the remaining airlines make up 7%.
The DOT believes that Norwegian, which has shown an ability to aggressively challenge existing airlines, plus the large numbers of Airbus A321neo and Boeing 737 MAX aircraft on order on both sides of the Atlantic that can fly between Ireland and the United States, there are low barriers to entry and would allow for the rise of more competitors, or let a current competitor grow. Of course, Norwegian still has a lot of terrain to cross before it can successfully come out of the crisis.
Aer Lingus joining the joint venture agreement would impact under 90% of US-Europe passengers. On markets where the number of competitors decreases, though concerning, is less than 2% of all US-Europe passengers in 100 out of a total of 5,593 markets. There will be ample competition still on plenty of routes.
In markets where American and Aer Lingus directly compete, there are only two. Chicago to Dublin is a market that Aer Lingus serves year-round while United and American only offer summer seasonal service. On the Philadelphia to Dublin route, American and Aer Lingus offer year-round service and would have a near monopoly.
However, the DOT believes that intervening hubs, such as Newark, New York-JFK, Boston, Reykjavik, and Toronto-Pearson, will help keep competition alive. Not to mention, given how close Philadelphia is to Dublin, the DOT believes that other carriers, like LCCs, can use narrowbody jets to serve the market.
The benefits outweigh the cost
The DOT believes Aer Lingus joining the joint venture agreement is still beneficial to the public. The oneworld airlines claim that the amended agreement will generate an additional $67 million in incremental consumer benefits annually, mainly through increased connectivity.
This includes 72 new unique codeshare destinations which will give Aer Lingus new connections and routes in North America while giving oneworld passengers another European hub for connections, meaning more routings between the US and Europe, leading to lower fares, and stimulating up to 16,800 new passengers a year– not to mention the cargo opportunities.
The DOT also looked at what existing airlines in the agreement have done. British Airways has been incredibly active with new transatlantic services to cities like San Jose, Las Vegas, Austin, New Orleans, Nashville, Fort Lauderdale, Charleston, and Pittsburgh. All of this, plus frequent flier benefits, also means more options for customers.
Given the substantial number of connecting passengers getting to Ireland, the DOT believes the amending of the existing joint venture agreement will provide benefits to the public. Aer Lingus, out of Ireland, could use Cork as a base for more transatlantic operations. Not to mention, with the A321XLR due at the airline, the opportunities are endless.
The wild cards
While the DOT expects to review the joint venture again in five years, there are still a few wild cards. First and foremost, the survival of low-cost competitor Norwegian is not guaranteed. The recent demise of airlines like WOW and Primera are just a few examples.
The next thing that is currently uncertain is whether Aer Lingus will be adding nonstop flights from Manchester to the United States using an Airbus A321LR. While this is, undoubtedly, in the early stages of planning, Aer Lingus’ operations out of Manchester would further the oneworld venture’s market share between the United States and the UK and Ireland. This would certainly be at the forefront of the DOT’s review in a few years, especially given how big a share the airlines already have between London and the United States.
Are you glad to see Aer Lingus given the green light to join the oneworld transatlantic joint venture? Let us know in the comments!