BA plays national card in transatlantic battle

Robert Ayling, chairman of British Airways, has two battles on his hands right now - one with his pilots over pay and conditions, the other with the competition authorities over BA's proposed link with American Airlines. The two issues are not as unrelated as might be imagined.

On the one hand Mr Ayling wants his pilots and other employees to start living in the real world of flexible, insecure, rate-for -the-job employment; on the other he wants to bolster and consolidate BA's monopoly position on transatlantic air travel, a monopoly which helps explain why it is still possible, in an age when such things are meant to be a dim and distant memory, for BA's flight staff to hold their company and the air travelling public to ransom.

Cut through the smooth-talking banter of BA's transatlantic argument, and you find a proposal which is fundamentally anti-competitive and monopolistic. Prima facie, this deal should not be allowed. Combined, the two airlines will have something like 80 per cent of prime time flights between Heathrow and North America. Once the market power of two of the world's most extensive reservation systems is taken into account, the monopoly becomes a gilt-edged guarantee. And finally, the whole thing is underwritten for all time by the frequent-flier programmes of the two airlines.

As Mr Ayling told MPs on the Commons Transport Select Committee yesterday, there are reasonably powerful counter arguments. The first is that code sharing can actually be competition enhancing if combined with an open- skies policy, as proposed in this case. The second is our old friend, the national card. If you don't allow us to do this, BA says, you will put one of Britain's most successful companies at a competitive disadvantage to rival flag carriers with more amenable governments.

The first argument can easily be dispensed with. An open-skies policy is hardly worth the paper it is written on as long as British Airways remains in control of Heathrow, which it does by dominating the landing right schedules, or slots. It doesn't matter how many airlines come forward to compete on these routes, they will not be able to without the right slots. The obvious remedy here would be for BA to give up a proportion of its slots to domestic and foreign competition, but for BA the level of slot-stripping required would probably prove a deal breaker.

So, on to the national card. Other European airlines, notably Lufthansa and KLM, have already set up code sharing deals with American counterparts. If they can offer the advantages of seamless travel to American and European passengers but BA is blocked, it will not be long before lucrative transatlantic business starts to gravitate to Lufthansa, KLM and others. Traffic will move out of Heathrow and towards Frankfurt and Schipol, BA warns.

Well maybe, maybe not. In the end passengers will chase those offering the best service and prices. You don't need code sharing to provide seamless travel these days - anyone can do it.

BA likes to quote Jergen Weber, chairman of Lufthansa, in support of its case. Pointing out that Lufthansa had just become part of the biggest airline alliance in the world, he said that this would enable the company to maintain its leading role in the airline industry and "is therefore a key factor in safeguarding the value of Lufthansa shares". But just because Germany finds it acceptable to sacrifice the interests of consumers to those of shareholders, does that mean Britain should too?

The best thing that could happen is for the European Commission, which is now investigating all these code sharing arrangements, to ban the lot. But it's hardly going to do that given that the Lufthansa one is already up and running with the full blessing of the Germany authorities. The alternative is the one proposed earlier - that BA be stripped of a proportion of its slots. But since when has a monopoly willingly traded market share?

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