The decision also dashes hopes for the foreseeable future of a new "open skies" agreement governing air travel across the North Atlantic. An agreement would have opened Heathrow airport to a flood of new US carriers, weakening BA's dominance on US-UK routes.
The European Competition Commissioner, Karel Van Miert, had demanded that BA surrender 267 take-off and landing slots at Heathrow and Gatwick immediately in return for approval of the alliance.
BA said: "The terms put forward by the European Commission are not acceptable to us commercially. What we want is for the alliance to be phased over the next four to five years."
The City had become increasingly convinced over the past month that BA would scale back the alliance to avoid facing increased competition at its Heathrow hub just as the transatlantic market is heading for a pronounced slowdown.
Chris Tarry, aviation analyst with Dresdner Kleinwort Benson, believes passenger growth next year could fall to as low as 1 to 3 per cent compared with historic rates of 8 per cent. "Faced with that, BA's decision is eminently sensible," he said. "Ultimately the alliance will happen, but it is a question of timing. With traffic growing so slowly, why take the pain of opening up Heathrow now?"
BA shares, which have been in a tailspin since the AA alliance was first announced more than two years ago, reacted positively to the news, rising 17p to 434p.
BA insisted it had not given up hope of merging its transatlantic services with those of AA, a deal that would require anti-trust immunity from regulators on both sides of the Atlantic. "In the meantime, we will continue to progress our alliance strategy with our airline partners within the current legal framework," the spokesman added.Reuse content