By Mary Schlangenstein and Mary Jane Credeur
Feb. 10 (Bloomberg) -- AMR Corp.’s American Airlines preserved the Asian portion of its global network by fending off Delta Air Lines Inc.’s bid to pry Japan Airlines Corp. out of the Oneworld alliance.
Japan Air opted to stay with American because they have a 10-year relationship and out of concern that regulators wouldn’t grant the right to set fares with Delta, two people familiar with the matter said. Japan Air, also known as JAL, made its choice after five months of jockeying by the U.S. carriers.
“AMR had almost their whole Asian strategy at risk here,” Ray Neidl, an independent airline analyst in New York, said yesterday. “Without JAL, AMR had very limited access to northern Asia.”
Japan Air’s routes in its home country and elsewhere in Asia made it a prize to American and Delta even after the Tokyo- based carrier filed for bankruptcy protection last month. Losing JAL would have cost American’s Oneworld its only Japanese partner, while a Delta victory would have cemented that carrier’s grip on U.S.-Japan traffic.
American and JAL now will seek government authority to coordinate fares and schedules across the Pacific, a step to reduce costs and boost revenue. American’s operations across the Pacific are the smallest region by revenue for the Fort Worth, Texas-based carrier.
‘Right Choice’
“It’s the right choice by Japan Air,” said Makoto Murayama, a Nomura Securities Co. analyst in Tokyo. “The continuation of the partnership with American also means there will still be competition among the three airline alliances at Tokyo’s Narita airport.”
AMR rose $1.01, or 14 percent, to $8.33 in New York Stock Exchange composite trading yesterday, the biggest one-day advance since Sept. 17. Atlanta-based Delta gained $1.14, or 10 percent, to $12.39, the most since Dec. 11.
American and TPG, the private-equity firm founded by David Bonderman, had proposed an investment in JAL of as much as $1.4 billion, which the Japanese airline played down in recent weeks. A TPG spokesman, Owen Blicksilver, declined to comment about the plans for any investment.
“Our offer hasn’t changed, but it would depend on the needs and desires of JAL and the government,” Andy Backover, an American spokesman, said yesterday.
Approaching JAL
AMR Chief Executive Officer Gerard Arpey approached JAL about seeking so-called antitrust immunity to expand their existing marketing accord last year before Delta began efforts to lure the Japanese carrier to the SkyTeam alliance from Oneworld.
American’s effort began without publicity. In September, Japanese news outlets reported negotiations were under way between Delta and JAL on a capital tie-up, which Japan Air initially denied. Only one major carrier, Continental Airlines Inc., has ever switched alliances.
Delta CEO Richard Anderson “made AMR defend their territory, and went after them aggressively,” said Jim Corridore, a Standard & Poor’s equity analyst in New York who recommends buying Delta shares and holding AMR. “Delta was looking at it as a chance to steal something from a competitor and it didn’t work.”
SkyTeam had proposed a $1 billion package for Japan Air, half of which would have been a cash injection. Anderson led Delta’s acquisition of Northwest Airlines Corp. in 2008 to leapfrog American as the world’s largest carrier.
‘Important Win’
“This is an important win for American and its CEO, particularly after the aggressive efforts by Delta to snatch JAL away from AMR’s arms,” said Douglas Runte, managing director at Piper Jaffray & Co. in New York. He doesn’t rate AMR or Delta.
Delta’s network includes routes between Tokyo and 10 U.S. cities, with hubs such as Atlanta, New York’s Kennedy airport and Detroit.
“Delta has a strong competitive presence in the U.S.-to- Asia market,” said Betsy Talton, a spokeswoman for the airline. “We continue to consider future strategic moves and remain committed to providing a leading option for travel across the Pacific and around the globe.”
JAL will probably generate $2 billion in revenue over three years from its membership of Oneworld, AMR reiterated yesterday. That includes $1.5 billion from ongoing ties and an additional $200 million from greater cooperation with British Airways Plc and $300 million in revenue guaranteed by American over the period, the carriers said last month.
British Airways
“We will now talk to JAL about turning these plans into reality,” Laura Goodes, a spokeswoman for London-based British Airways, said in an interview.
AMR “remains confident” that the U.S. will approve the antitrust immunity application, Arpey said in a statement.
Japan and the U.S. reached an initial “open skies” deal last year that would remove government restrictions on flights between the two countries. All Nippon Airways Co., Japan’s No. 2 carrier, has requested antitrust immunity to extend cooperation with Star Alliance partners United Airlines and Continental on Japan-U.S. flights.
The U.S. and Japan air-travel market is about evenly divided between Delta’s SkyTeam, Oneworld and Star.
“JAL finally got the message that they had very little chance pursuing an immunized relationship with SkyTeam, and that it would have jeopardized the entire open skies treaty,” said Hunter Keay, a Stifel Nicolaus & Co. analyst in Baltimore. “They saw that getting antitrust immunity was the most important thing and that that’s a lot more certain with American.”
Delta previously said that a tie-up with JAL would give the two carriers 58 percent of Japan-U.S. services including flights from beach locations such as Hawaii. American has said its share would shrink to 6 percent without JAL.
To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net