BA alliance hits more turbulence

Gatwick could be the escape route, but EU pressure may still threaten the pact with American, says Peter Robison

Observers wonder whether British Airways and American Airlines have a card up their sleeve as anti-trust regulators, rival airlines and consumer advocates focus on access to Heathrow Airport as key to their planned alliance.

BA's dominant position at Heathrow has traditionally been its main money- spinner. It's no surprise, then, that stripping BA and American of some of their large cache of take-off and landing slots at Heathrow has been the focus of anti-trust reviews in the US, the UK and the European Union.

But it's not certain that Heathrow is as important as it used to be. Even if regulators do force BA and American to give up slots at Heathrow, they could use their combined marketing clout to shift the focus of transatlantic travel to Gatwick. Then rivals would pile into Heathrow, only to find so much competition that brutal price-cutting would hit their yield from each ticket.

"Gatwick used to be the bucket and spade airport, the poor boy,'' said Chris Partridge, aerospace banker at Deutsche Morgan Grenfell. "Now the network out of Gatwick is comprehensive, and Heathrow is turning into a competitive market where yields do nothing but go down."

BA, he noted, now flies more routes from Gatwick than it does from Heathrow. It proposed the alliance with American in June 1996, and anti-trust reviews are expected to come to a head in late October.

"BA is positioning itself to be able to give away those slots," said Mr Partridge. "Where BA is the carrier of choice, it's moving traffic away from Heathrow and building up another long-haul network."

Meanwhile, the tortuous path towards regulatory approval took a new twist late last week as a top US trade official chided the EU's tough stance on the pact.

Stuart Eizenstat, the undersecretary of state for economic affairs, urged EU competition commissioner Karel Van Miert to approve the alliance in an unexpected US endorsement of the plan and asked him not to impose "impossible" conditions.

It was meant as a gentle message to Mr Van Miert just weeks after a tussle over Boeing's purchase of McDonnell Douglas threatened a transatlantic trade war before the world's dominant plane manufacturer accepted EU-ordered concessions.

While the two airlines hailed the vote of confidence from the US, analysts warned that the public disagreement could signal the start of another messy dispute that would further delay their plan to unite transatlantic flights and fares.

"It runs the severe risk of turning up the temperature because Mr Van Miert is not a man who likes to be told what to do by the US,'' said Chris Avery of Paribas Capital Markets.

On the face of it, regulators on both sides don't appear too far apart. The EU has asked BA and American to give up enough runway and gate access at Heathrow for 25 daily round-trip flights, while the US General Accounting Office called earlier this year for 23 competing daily round-trips.

But Mr Van Miert has gone much further than other regulators with plans for cuts in the frequency of their flights, a key concession for an alliance primarily targeted at the business passengers who pay premium prices for the flexibility of several flights a day.

He wants a 50 per cent cut on routes between Heathrow and Chicago, for instance, and also suggested barring the airlines from uniting their frequent- flier programmes - putting them at a disadvantage with rivals such as the "Star Alliance", a five-carrier pact headed by Germany's Lufthansa and United Airlines.

The EU has emphasised that its recommendations are only preliminary and may still change.

As deregulation has advanced and put major airlines under pressure, they've responded with alliances that allow them to unite operations like baggage handling, co-ordinate their airplane purchases and sell seats on each other's routes as their own.

Chris Tarry, an analyst at Dresdner Kleinwort Benson, estimates American could contribute almost 1,400 passengers a day to BA's network within three years, compared with 500 for its former partnership with US Airways.

US policymakers still view an open-skies treaty with Britain as the jewel in their crown. But the ripples between Mr Eizenstat and Mr Van Miert this week heightened US fears that the EU might push BA too far. To the point that it withdraws from the alliance and scuppers the chances of opening Heathrow to all the US airlines that want access.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
Voices
Focus E15 Mothers led a protest to highlight the lack of affordable housing in London
voicesLondon’s housing crisis amounts to an abuse of human rights, says Grace Dent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea