BA and American create air superpower

British Airways and American Airlines yesterday ran into a storm of protest after unveiling plans for a highly ambitious code-sharing agreement that would create the world's largest aviation alliance with the power to transform competition between Europe and the United States.

Under the arrangement, announced simultaneously in London by BA's chief executive, Bob Ayling, and in New York by his American counterpart, Robert Crandall, the two airlines would splice together their schedules and share flight codes to forge a single network of routes around the world. But the alliance will be the subject of close scrutiny from competition authorities on both sides of the Atlantic and rivals were quick to warn yesterday of the dangers to competition.

Virgin's Richard Branson immediately condemned the deal as anti-competitive. Delta Air Lines, the third-biggest carrier, said it would oppose the alliance unless Britain and the US reached agreement on an "open-skies" agreement to further open up Heathrow airport to US airlines. Continental Airlines and the Dutch operator KLM were others that expressed unease at the link- up, with only USAir, in which BA has a 24.6 per cent stake, saying it would open up new opportunities.

The deal was welcomed by the stock market, which marked BA's shares 9p higher to 562p. Chris Tarry, an analyst with Kleinwort Benson Securities, described it as a major step. "It is likely to mark a greater willingness on the part of the UK to have a more liberal [open-skies] agreement. But it also opens the way for Virgin and others to wrest concessions," he said.

The link-up means that from April next year passengers booking with BA to the US, for instance, could find themselves on an American Airlines flight. Among those planes carrying both BA and American flight codes will be Concorde.

The two companies will remain independent, however. Contrary to the rumours of recent weeks, the pact does not foresee any swapping of equity or any trading of seats between the respective boards. British Airways, meanwhile, is seeking to retain its shareholding in USAir.

Instant criticism of the deal was provided by Richard Branson, whose Virgin Atlantic Airways could face harsh new conditions across the Atlantic. "Given the history of these two airlines and their anti-competitive behaviour, it would be hard to believe any rational government, in the interest of consumers, would allow this to go forward," he said.

Already among the world's most powerful airlines, BA and American would together account for almost 60 per cent of traffic between Britain and the US. Between Kennedy airport in New York and Heathrow their share is 70 per cent, while they are the only carriers on the London-to-Dallas route.

Analysts predicted that the two companies will be expected at the very least to carve out from the agreement some routes where their domination would be unacceptable, including possibly between New York and London. "This is nowhere near what the governments are going to accept," Craig Jenks, an aviation expert in New York, said. "Were the US to approve this, they would be abandoning the criteria they have applied to all previous cases of this kind".

For the agreement to be viable, the two carriers must extract immunity from the US government from current fair-competition regulations. That, is likely to be contingent upon the US and British governments resolving long-standing arguments on an "open-skies" aviation agreement.

Comment, page 17

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