Behind the code, a behemoth of the skies is born

If you cannot beat them, join them. Robert Crandall, chief executive of American Airlines, once famously described code sharing as "profoundly anti-competitive". Since then there has been a host of such agreements, and despite their anti-competitive nature, they have all tended to win regulatory approval, the quid pro quo being that the two countries involved give up fiercely protected landing rights. Now comes the big daddy of them all - a code-sharing arrangement between British Airways and, yes, American Airlines.

Code sharing is jargon for the ability of one airline to transfer its passengers on to the other's network. In essence, the two companies become one, for code sharing plainly requires extensive co-operation between participants on pricing, marketing and most other things that make an airline tick.

British Airways is the largest international carrier in the world. American is the third largest internationally and the second largest overall. Between them they have nearly 60 per cent of UK-US traffic, which accounts for the bulk of transatlantic traffic generally. And between them they create a potential network of some 36,000 destinations. It can readily be seen that what is proposed is the creation of a behemoth with the capacity to crush most opposition before it.

In most industries such a proposal would be so outrageous as to be laughable. But airlines, with their closely guarded national landing rights and internationally agreed pricing structures, have never obeyed the normal rules of competition. It may well be that code sharing is no worse than the bilateral international agreements that went before. The trail has also been blazed to the extent that it is now so well trodden as to be a virtually open motorway. KLM has linked with North West, Delta with a cluster of European airlines including Virgin, and Lufthansa has tied itself up with United and others. This is international concentration of an industry almost without precedent, and all without that tiresome and expensive business of full-bloodied merger.

From a commercial point of view it obviously makes sense. Both American and British Airways have spoken out fiercely against it, but they could hardly resist while everyone else merrily moves ahead regardless. The question is whether the tie up between two of the world's biggest is the code sharing too far, especially given their key transatlantic businesses.

Richard Branson and quite a few of the other pilot fish forced to swim with the sharks, thinks it is. He points to the hypocracy of two companies which complained bitterly about the anti-competitive nature of Lufthansa's tie up with United. Now, apparently, the scales have fallen from their eyes and it is perfectly alright to engage in such antics. That's commerce for you. And it may well be that the carrot being offered to US regulators of open access to Heathrow, plus those treasured fifth freedom rights, if that is what the British authorities are prepared to offer, is enough to do the trick. While competition is taken away with one hand, it is increased with the other. That is what they would like you to believe, anyway.

End of a marriage made in hell

It is not often that a business is so bad that the vendor has to pay the buyer to take it away. But such is the case with Do It All, a DIY joint venture so botched that it would shame any weekend hammer and chisel enthusiast. Do It All has swallowed up pounds 60m-plus in losses and a further pounds 75m in investment since being formed in 1989. Now WH Smith is paying Boots a thumping pounds 63.5m to take control of its 50 per cent share. It has been an expensive failure.

Do It All was always known as the marriage made in hell. It took two of the weakest players in the market and created, hey presto, an even weaker one. While rivals such as B&Q and Sainsbury's Homebase gained market share, Do It All's mounting losses became a rising source of embarrassment to two of Britain's largest retailers.

Perhaps the salutary lesson here is that joint ventures are a hard trick to pull off. Shared responsibility and split costs sound good when things are going well. But when the going gets tough, differences of opinion and strategy are bound to emerge. Given these problems, it is a wonder Boots and WH Smith put up with each other for as long as they did. Part of the answer to why things have moved so suddenly to divorce lies in the change of regime at WH Smith. The new chief has found it easier to make a clean break than his predecessor, who was naturally more emotionally involved in the tie up.

WH Smith is paying a heavy price to rid itself of the burden but it can now concentrate on other issues, not least resolving the problems in its core chain. Boots on the other hand has its work cut out. Its decision is a calculated gamble on continued improvement in the housing market and consumer spending. There were few options, of course. No one else would have looked at Do It All and the cost of closing it would have been prohibitive. Boots chief executive Lord Blyth will be praying for the feelgood factor.

Exchange job is no poisoned chalice

So it is Gavin Casey, formerly chief operating officer of Smith New Court and a name totally absent from the list of possibilities touted in the press, who takes up the poisoned chalice of the Stock Exchange's top job. But hold on a moment. Is this really such a tough or important assignment as it once was? A lot has changed since Michael Lawrence was so unceremoniously thrown overboard six months ago. Then it seemed an impossible job, one that required reconciling very different vested interests, riding roughshod over powerful traditionalists, and creating alternative sources of revenue, sometimes in competition with members, to shore up the Exchange's future. That was how Mr Lawrence characterised the role, anyway.

Mr Casey will find it hard to recognise these things in the Exchange he is about to inherit. With Mr Lawrence removed, an air of calm and quiet endeavour returned to the Exchange. The upshot is that most of the important decisions, especially that of the new trading system, have already been taken. The Stock Exchange is going to have to take on the chin the loss of revenue that the start-up of Crest involves, and drastically adjust its costs and horizons accordingly. As for the new trading system, it is to be a hybrid - the order- driven system favoured by Mr Lawrence but with the quote-driven system beloved of market-makers continuing in tandem.

Mr Casey's job is to argue over the downsizing, to carry out decisions which have already been taken for him by others. Obviously it is not a particularly exciting role but it is one better suited to the more limited position in the City the Exchange must resign itelf to. And just in case Mr Casey is tempted to follow his predecessor's pretentions, and attempt to go native, let it not be forgotten that he is essentially a creature of Michael Marks, the Smith NewCourt chairman (now Merrill Lynch) most closely associated with the ousting of Mr Lawrence.

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