As has been widely reported today, American Airlines, British Airways and Iberia (along with Finnair and Royal Jordanian) have all signed a joint agreement, which they say will be great for passengers: more destinations, and, according to American’s press release, the alliance will “enable the airlines to reduce costs and attract new customers, helping to mitigate pressure on airfares from record fuel costs.” Kind of sounds like cheaper airfare, right? But…but… But let’s ask Richard Branson of Virgin fame. He says the new partnership will create “a monster monopoly”. And monopolies are never good for airline ticket pirces. Of course, Branson’s got Virgin Atlantic to worry about — and he and BA have been at odds from the start. But the man does know the airline business — and the man is not alone. Keep reading — to learn about this same attempt to partner 10 years ago and why that attempt went down in flames…

Let’s go back 10 years; American proposed an alliance with British Airways back then, but the U.S. Justice Dept. didn’t think much of it. Take a look at this DOJ document from May 1998 in which Justice officials outline their reasons for not approving of the alliance: it would

“significantly reduce airline competition between the U.S. and the U.K.” and, result in “higher fares” on those routes.

What’s changed? Well, now we have “Open Skies” – an accord that relaxes older restrictions on U.S – E.U. air travel. But Branson says, Open Skies hasn’t delivered for one simple reason:

“Heathrow is full.”

The Heathrow debate — as it is the crown jewel for connections to the rest of the world — is about slots; who has them locked up and how “liquid” they are for competitors to obtain. Last go round in 1998, one option to address the competition issue would have required BA/AA to “divest” Heathrow slots for competitors — the counter argument today is that slots at Heathrow are “for sale” to competitors.

There’s also the Delta-Northwest merger which has been given temporary antitrust immunity (Delta/Air France, Northwest/KLM); there’s also the soaring fuel prices we’ve seen this past year, which has got the airlines trying any and everything to make more money.

The bottom line is that this alliance is about $$$ for the partners — lower ticket prices and more choice for air travelers is probably 19th and 20thon the top20 reasons for this agreement. Morgan Stanley notes potential revenues of this alliance could be in the $400 to $800 million range a year, including “cost synergies”.

In any event, all seem to agree that it will take several years for this alliance to “ramp up” as they say. The folks over at BusinessWeek note, “it’ll be interesting to watch this play out” — and that’s a sentiment I can thoroughly agree with.