By Foo Yun Chee
BRUSSELS (Reuters) - American Airlines
The airlines had planned to deepen the pact to take advantage of the U.S./EU "Open Skies" agreement, with the focus on routes between the United States, Mexico, Canada, the EU, Norway and Switzerland, but European Union regulators said the latest plan may violate antitrust rules.
Alliances are seen as a lucrative alternative to mergers and large-scale investments. The three carriers have applied for U.S. government antitrust immunity for their transatlantic pact.
The European Commission, which in April launched a probe into both the Oneworld alliance and the Star Alliance, made up of Air Canada
"The Commission's statement of objections concerns agreements... regarding the coordination of the parties' commercial, operational and marketing activities in relation to passenger traffic on transatlantic routes," the EU executive said in a statement.
Price-fixing is illegal under EU antitrust rules. BA shares were down 2.89 percent, AMR shares were up 0.83 percent and Iberia was down 1.81 percent. The DJ Stoxx transport and leisure index <.SXTP> was 1.92 percent off.
The Commission may be concerned that the alliance could monopolize certain routes and lead to fewer flights for some destinations, said antitrust lawyer Martin Bechtold at Allen & Overy.
"What happens in these alliances is that the parties agree to jointly serve destinations, so for example offering one flight instead of three. Their argument would be that this is not restrictive and this creates efficiencies," he said.
"It appears that the Commission has so far not been convinced that the efficiencies are great," Bechtold said. He said allowing rivals to offer a similar service or join their bonus programs and giving up airport slots may address competition concerns.
British Airways, AMR and Iberia said they were ready to cooperate with the Commission and look for remedies.
"We look forward to the opportunity to address and overcome the EU's concerns, especially given the substantial benefits for consumers that would result from our transatlantic joint business," AMR said in a statement.
Rival airline Virgin Atlantic said the antitrust concerns were justified.
"This alliance between British Airways and American Airlines is a monster monopoly which, if given the go-ahead, will allow these dominant carriers to increase their stranglehold at Heathrow by setting prices and agreeing schedules," Virgin's chief executive, Steve Ridgway, said in a statement.
The Commission, the EU competition watchdog, said its investigation into the Star Alliance was continuing.
The airline industry is expected to post $11 billion in losses this year, with weak passenger and cargo demand denting revenues, the International Air Transport Association trade group said last month.
(Additional reporting by Pete Harrison in Brussels, Tracy Rucinski in Madrid, Kyle Peterson in Chicago; editing by Dale Hudson, Simon Jessop, Mike Nesbit, Dave Zimmerman)
