The world's favourite cartel

An alliance between British Airways and American Airlines would increase prices and reduce services, says Richard Branson
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The Independent Online
For the past 16 years Britain and the United States have professed to want to "liberate" airline travel around the world, and across the Atlantic in particular. After the demise of Laker Airlines in 1982 - at the hands of a cartel led by British Airways and with the connivance of American and European carriers - along came Virgin. Since 1984 we have fought tigerishly to get into every market across the Atlantic and offer the consumer a better deal. The result? Fares on all the routes on which we fly are lower and the quality of service has risen, often dramatically.

It is hard to believe that any national government would want to throw all that away. Yet all this is at risk. Both the UK and US governments are considering allowing the world's two most powerful airlines to forge an alliance that would give them a 100 per cent market share on some routes - and an average 60 per cent on all UK/US routes. In no other industry in the capitalist world would the creation of such a monopolistic alliance be tolerated.

What will the result be? Fares will rise and the quality of service for passengers will fall. Instead of "open skies" - the professed policy on both sides of the Atlantic - the two governments will have presided over the creation of the Aeroflot of the capitalist West.

Of course, any proposed alliance between BA and American Airlines will require anti-trust immunity from the US authorities. This would be the American equivalent of banning the Monopolies and Mergers Commission from investigating the activities of the two companies. As the MMC is already barred from looking into BA (British airlines and sugar beet production are the only two industries so exempt) this would mean that the most powerful cartel in aviation history would be given carte blanche to behave as it wants in the marketplace.

The hypocrisy of it all will not be lost on those recalling the words of Robert Ayling, BA's chief executive, as he outlined his objections - yes, objections - to plans by Lufthansa and United Airlines for a similar sharing arrangement in March. "What Lufthansa want to do is to reduce the level of competition by relaxing the anti-trust laws," he said. Adding to the irony of his objection is that Lufthansa and United flew less than 14 per cent of all scheduled flights between the whole of Europe and the US, whereas BA and AA, who now propose a far more extensive link-up, last year flew more than 60 per cent of all British flights and 30 per cent of all European flights to America.

The nub of the deal between the two airlines is what the industry calls "code-sharing". This is where one operator can sell tickets on another's flights, allowing an airline to sell tickets on routes on which it does not operate. This practice has been condemned as "profoundly anti-competitive". By whom? Robert Crandall, American's chairman, who claims that they none the less have to adopt the practice to stave off rivals.

It beggars belief that any immunity for these two monopolists could possibly be considered. But we hear that the trade-off for creating Aeroflot Mark 2 is going to be "open skies to Heathrow"; in other words, letting all US carriers into this busiest of airports. But anyone who knows how Heathrow works knows that despite this quid pro quo the BA/AA duopoly will still control most of the slots for take-offs and landings. "Open skies" then becomes just an empty slogan.

The brutal and sad fact is that trying to get into Heathrow - as Virgin knows to its cost - means a wearying wait. It was in 1992 that we first applied for slots to Johannesburg. Four years later, we have just been awarded three openings for the coming winter. And Virgin has also applied for many other routes (including the Heathrow to Chicago route, where BA and AA have a 94 per cent share!) only to be rejected.Not only is Heathrow full, but it also operates a system of "grandfather" rights, where those that were first in enjoy the greatest access irrespective of their merit.

The market power of the duopolists will be enormous. They will control the crucial feeder services of almost every transatlantic route and thus be able to inflict unfair influence on consumer choice by manipulating commissions paid to travel agents.

British Airways and American Airlines already enjoy huge monopolistic advantages; this deal will just increase those advantages at the cost of real and meaningful competition.

The implications of the deal are so vast they must be subject to a wide- ranging public debate. The competition authorities (such as they exist) and the Civil Aviation Authority should be called on to examine the alliance in detail and publish their findings. Above all, the criterion for judging whether or not to approve the deal should be solely what is best for the travelling public, not the shareholders of these two giants.

It is well known that Virgin and BA have had strong differences in the past, to put it mildly. But that is not what is at stake here. This is not sour grapes; it is not about Virgin. The issue is the competitive future of air travel. If nothing is done, if this unholy alliance is allowed, then there will not be more competition, there will not be lower fares. Instead, we will see a return to the grim old days of cartels and monopolies; what the past chairman of the CAA Christopher Chattaway described as the "culture of collusion".

Airlines such as British Airways did not achieve what they have by providing low fares and high-quality services. Just remember how awful they used to be until forced to compete! If the public had woken up to hear that BA and Virgin had merged, they would probably be pretty outraged. This deal is even worse.

So if any consumers hearing the news of yesterday's deal are tempted to crack open the champagne, my advice is: don't. This return to the aviation Dark Ages is nothing to celebrate.