BA to begin collaboration ahead of alliance

British Airways is examining ways to begin co-operating early with American Airlines, even though regulatory hurdles in the US and Europe are likely to hold up the formal launch of their transatlantic alliance until late this year.

The news came as BA celebrated a decade in the private sector with record third-quarter profits and a special offer of 200 return tickets on Concorde for just pounds 10.

Among the options being considered by BA and American are to begin sharing facilities at Heathrow and American's US hubs and joint marketing initiatives. BA executives said there were a number of areas in which they could collaborate in advance of the alliance being given anti-trust immunity by the US authorities.

They also expressed confidence that any link-up between American and the Spanish flag-carrier Iberia would not jeopardise the alliance. "Iberia would be a pretty odd bedfellow for us and doesn't have the right image but we do not think American would do anything that would create difficulties for our alliance," one BA executive said.

BA's code-share agreement with USAir expires at the end of March but BA and American are unlikely to get the go-ahead to merge their transatlantic services until the autumn. The link-up is being examined by the European Commission and the US Justice Department and Department of Transportation. The European Competition Commissioner, Karel van Miert, has warned he may take Britain to the European Court unless tougher conditions are imposed on the deal.

Mr Van Miert is also contesting BA's right to sell off runway slots as the price for getting regulatory approval, as this would amount to a backdoor form of state aid for airlines.

The loss of the USAir link-up will deprive BA of an estimated $100m in extra profits.

But as from this week BA is free to sell its 24.6 per cent holding in the carrier to other investors in a move which should allow it to at least recoup its original pounds 250m investment. BA wrote down the value of the shareholding to pounds 125m in 1995.

USAir has until the end of this week to repurchase the stake itself. Assuming that it decides not to, BA will begin negotiations with its advisers to dispose of the shareholding, probably through a placing in New York. The sale may not be completed in the current financial year.

Meanwhile, the BA chairman, Sir Colin Marshall, said he expected the economic growth that had fuelled record airline profits in 1996 to continue this year. BA, he added, remained on track to achieve pounds 1bn of cost savings by the end of the decade through its business efficiency programme.

He was speaking as BA reported a 9 per cent advance in pre-tax profits to pounds 113m for the three months to the end of December. The improvement came despite a 34 per cent rise in fuel costs, which increased BA's fuel bill by pounds 56m and reduced operating profits to pounds 131m.

The Concorde offer will cost BA pounds 1m in lost ticket revenue. The pounds 10 return represents a saving of pounds 5,400 on the current round fare. The tickets go on sale from 10pm tonight to the first callers to ring a special number: 0345 222111.

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