EU competition probe could hit BA's American dream

Multiple anti-trust investigations question transatlantic agreements

Seven airlines, including British Airways (BA), are being investigated by Europe's competition watchdog over concerns that transatlantic co-operation could be breaking monopoly laws.

The European Union's Competition Commission launched two separate enquiries yesterday, one into the relationship between Star Alliance members Air Canada, Continental, Lufthansa and United Airlines, the other into the proposed tie-up between Oneworld members BA, Iberia and American Airlines.

BA said the move was simply a procedural necessity for clearance of its American scheme. But the Commission warned that while the opening of proceedings does not necessarily imply conclusive proof of an infringement, it does mean there are sufficient concerns to merit scrutiny.

Jonathan Todd, the watchdog's competition spokesman, said: "It would be misleading to suggest opening a formal anti-trust investigation is routine."

The Commission's main concern is that consumer interests may be threatened by agreements between airlines to co-ordinate fares, capacity and timetables, and share revenues. "The level of cooperation in question appears far more extensive than the general cooperation between these airlines and others which are part of the alliances," the statement from the regulator said.

Regulators' involvement in the BA/American scheme began when the process was mooted last August. The deal requires anti-trust immunity (ATI) under US law, the application for which is currently being considered in Washington. In Europe, there is no mechanism for ATI approval, with the onus on the individual company to prove that activities contravening collusion rules bring benefits to consumers.

BA has been discussing the issue with the Commission since last summer, the carrier said yesterday. "As far as we are aware this investigation is a normal part of the process," a spokeswoman said. "The only difference this formal, procedural step makes is that the national authorities of EU countries can no longer investigate the proposal themselves because it makes it an EU-wide examination."

The BA enquiry focuses on future plans only. But the examination of Star Alliance members – which already have ATI status – refers to existing activities. And SkyTeam, the other alliance with ATI, is also subject to a competition investigation in Brussels.

BA needs a deeper transatlantic agreement to help it compete with ATI-advantaged Star Alliance and SkyTeam members. The current attempt is the third time BA and AA have tried to get together. In 1999, and again in 2002, applications for ATI were either turned down, or required BA to give up an impossible number of Heathrow's restricted take-off and landing slots.

This time, things are different, says Willie Walsh, the BA chief executive, in response to vociferous opposition from rivals such as Virgin Atlantic. BA argues that the liberalisation of transatlantic flights, thanks to the Open Skies treaty of March 2008, has already opened up "Fortress Heathrow" and changed the nature of the market.

Over time, aviation industry experts expect the industry to be dominated by a few global alliances. The only way to ensure efficiency benefits is to go beyond basic code-sharing into closer-knit, ATI-type agreements and, given the size of the US market, all such groupings will need a US carrier. So if BA's American dream comes to nothing, it will be forced to look elsewhere.

Gert Zonneveld, an analyst at stockbroker Panmure Gordon, said: "If the American deal doesn't go through then it will be an end to co-operation between the two carriers. They will have to go their separate ways and the quest for another transatlantic partner will start over."

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