Brussels blesses KLM/Air France merger

EU regulators last night gave the green light to the creation of Europe's largest airline group, when it waived through the merger of the Dutch and French national carriers, KLM and Air France.

The decision, taken after the airlines pledged to surrender 94 take-off and landing slots, is likely to put pressure on competitors and hasten the consolidation of the global aviation business.

Yesterday's move by the European competition commissioner, Mario Monti, leaves just one significant hurdle ahead of the KLM-Air France tie-up, which still needs the approval of the US regulatory authorities.

Analysts believe this is far from a formality. As Air France has an alliance with Delta and KLM with Northwest, the merger has significant implications for competition on flights to lucrative transatlantic destinations.

But assuming the American regulators allow the merger, the combined French and Dutch carrier will leapfrog Lufthansa and British Airways to become Europe's biggest airline operator and one of the largest in the world in terms of revenue. It should also give the airlines new room for manoeuvre as they combat the combined effects of a downturn in the economy and fierce competition from low-cost carriers.

The surrender of 94 take off and landing slots - 47 pairs per day - will give others the chance to operate on 14 routes including Amsterdam-Paris, Amsterdam-Rome and links between Amsterdam and several French regional centres. Intercontinental routes include Amsterdam-New York, Paris-Detroit, Amsterdam-Atlanta and Paris-Lagos.

The commission would prefer one carrier to take up most of these slots to provide maximum competition for travellers. It decided to allow the merger through because it believed the two companies' networks were "largely complementary".

Air France has a stronger stake than KLM in southern Europe and Africa, while KLM has more routes to Northern Europe and the Far East.

Air France has said the merger cost savings will rise from between €65m (£44m) and €75m in 2004-05 to €385m to €495m in 2008-09, but there are no plans to cut jobs. Some rivals are sceptical about the profitability of an alliance without job reductions, and the industry reaction was measured.

A spokesman for BA said: "We don't oppose the merger in principle but we just want to look at the decision in detail to ensure that it addresses the competition issues raised."

In a separate move the commission said Air France and Alitalia, Italy's largest airline, might need to cut their dominance of some routes to win clearance for a more limited alliance. Following complaints from rivals and customers, a spokeswoman for the commission said it would be seeking to improve "commitments" given by the airlines, although she added: "The commission is still optimistic that it can approve the deal."