BA seeks clearance for transatlantic alliance

British Airways has sealed its alliance with American Airlines (AA) and Iberia over trans-atlantic flights – all that remains is to get past the regulators.

While retaining their legal status as independent entities, the agreement means commercial co-operation on routes between the US, Mexico, Canada, the EU, Switzerland and Norway. If it goes ahead, each carrier will be able to offer a wider range of destinations and through-tickets on the partner's networks.

But the US Department of Transportation still needs to give the thumbs-up, and it is the third time BA and AA have applied for anti-trust immunity for such an alliance. Last time, in 2002, the proposition foundered when BA refused to give up 16 pairs of take-off and landing slots at Heathrow. But after the Open Skies treaty came into effect in March, liberalising the market for transatlantic flights, such concerns no longer apply, according to Willie Walsh, the BA chief executive.

"The environment today is very different," Mr Walsh said. "Heathrow has been changed significantly by Open Skies, and that was one of the main stumbling blocks last time around. We are in a different competitive environment, and a lot of the issues that concerned people, if not all of them, are no longer there."

Rocketing fuel costs, the slowdown in the economy and the impact of the Open Skies treaty liberalising the transatlantic flight market are pushing major carriers to find ways to cut costs. BA had already agreed a nil-premium merger with Iberia at the end of July. If the further revenue-sharing tie-up with AA goes ahead, the airlines' combined network of 443 destinations in 106 countries, with more than 6,200 daily departures, will offer more routes and more frequent flights than any of the three can support on their own.

BA, AA and Iberia are also all members of the One World Alliance, a group of 10 co-operating carriers. Currently One World is dwarfed by its rivals: the Star Alliance, which includes Lufthansa and US Airways, is more than twice its size, and Skyteam, which includes Air France and Delta, has fewer members but the largest number of routes. It is also the only one without regulatory approval for such a deal. "The other two alliances already have anti-trust immunity on transatlantic flights so this application would allow One World to compete more effectively," Mr Walsh said.

Not everyone is happy. Sir Richard Branson, chief executive of Virgin Atlantic, wrote to the presidential hopefuls Barack Obama and John McCain at the weekend, warning that the link-up would give the triumvirate a stranglehold on Heathrow's slots, leaving consumers worse off. BA denies the claim.