British Airways becomes a campaign issue
But the row should not be about Europe - the real themes are large but domestic
Donald Macintyre writes political sketches for The Independent, having been Jerusalem correspondent since 2004, covering Israel and the Occupied Territories, as well as travelling for the paper to Iraq, Turkey, Jordan, Libya and Egypt. As Political Editor and then Chief Political Commentator, he previously covered the John Major and early Tony Blair era. He has written for the Daily Express, Sunday Times, Times and Sunday Telegraph, and Sunday Correspondent. He is the author of Mandelson and the Making of New Labour (2000).
Thursday 16 January 1997
The issue is a deal with American Airlines which will increase the domination of British Airways, the dashing success story of the Government's privatisation programme, as a global force, and which the Commission wants to unravel. Surely it's a gift to the Tories, just the chance John Major and his President of the Board of Trade, Ian Lang, need to show that they are ready to stand up to Brussels.
That's certainly the version currently running nightly in the Tory tabloids. And it isn't completely baseless. It wasn't necessarily all that smart for Karel Van Miert, the EU's Competition Commissioner, to threaten court action in his otherwise rather persuasive letter expressing concern about the BA American deal. Some of those criticising Mr Van Miert seem to forget that he is acting to enforce competition in the single market - the one aspect of the EU to which Margaret Thatcher, among many others, wholeheartedly signed up. There are big arguments among lawyers over whether it is a matter of EC competence at all. The Labour Party, for example, in contrast to its former leader, cautiously accepts the Government's argument that the Commission does not have the authority to decide whether the deal is or isn't competitive. And it rankles that for too many years European aviation wasn't exactly a showpiece of free competition. Artificially high fares and a history of some pounds 7.5bn in EC-sanctioned subsidies to bale out national airlines don't exactly inspire confidence in the Commission as the traveller's best friend.
But the primary row isn't, or shouldn't be, about Europe at all. The real themes are large but domestic: privatisation and how it was carried out; competition policy; the influence of industry on the political process. The two main business players, Bob Ayling, BA's chairman, and Virgin's Richard Branson, are figures so big that politicians in both the main parties would cheerfully sell their own grandmothers in return for a pre- election endorsement from either. And it isn't at all clear that this is going to be such an easy issue for the Government in the run-up to the election.
The bald facts, unlike everything else in this story, are relatively simple: British Airways currently operates 244 flights a week from Britain to 22 US airports. American Airlines runs only six fewer, between seven US airports to 12 destinations in Europe. Under an "alliance" concluded with the US airline, BA will stop competing with American on all these routes and they will both co-operate instead, sharing the undoubtedly handsome profits between them.
The Office of Fair Trading, which looked at the deal, accepted that it could go ahead without a reference to the Monopolies Commission provided that British Airways gave up - by selling rather than donating - 168 "slots" (or 84 return journey routes) to other airlines. The main rival, Virgin, is arguing ferociously (and, naturally, in its own interest) that this stipulation is nowhere near stringent enough to guarantee competition, that the alliance will control up to 70 percent of the transatlantic market, that prices will drop at first to deter new entrants to the market, and then rise steeply over subsequent years, and that the deal is just plain non-competitive. So, too, do BA's other rivals, and so does Mr Van Miert, who has pointed out that on 13 routes the two airlines will now enjoy a 100 per cent monopoly and on some others, such as London-New York, London- Boston and London-Chicago, an 80 per cent one.
The Consumers' Association, in a fairly devastating submission to the OFT, warned that the deal would "act to limit real, effective choice for consumers on transatlantic routes". It also warned that the "open skies" agreement which the US authorities are insisting must be a price for any deal - and which Virgin claims will offer rival US airlines access to Europe without widening access to the internal US market - should be struck in the interest of consumers and not "as a response to airline directed pressure".
Whitehall gossip has it that Lang is quite sympathetic to the competition argument but has been under heavy pressure from Michael Heseltine, a man who tends to think that in industry big is beautiful, to OK the deal. There have even been dark - and wholly unsubstantiated - hints that Ayling's generous involvement with the millennium celebrations may be connected with the Government's backing. But you don't have to buy conspiracy theories to recognise that, after several years of ruthless campaigning to fight off competition in the airline industry, British Airways, from Lord King on, have been very big players indeed.
However, the real problem is that British Airways was privatised in something so near monopolistic form, and given overwhelming advantage in terms of "slots" at Heathrow, the world's busiest airport. Maybe that was necessary to get the flotation of what had been an ailing state company off the ground. But it raises a real question over whether, having gone from success to success, it should be operating on a more level playing field. And that's a particularly sharp choice for the party of competition. It would be odd if commercial airline passengers did not even enjoy the choice which ministers say is so important for consumers of the state education system. Lang should refer the deal to the Monopolies and Mergers Commission without delay.
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