The Two Bobs and a concord in the sky

A flight from competition? asks Ian Griffiths. Not a bit of it, say the kings-elect of the aviation world

They call them the odd couple. They call them the unlikely lads. They call them all kinds of things; the 10p pieces (two Bobs), the Liverpool coppers (the Bobbies always go round in pairs when they haven't got a dog). Some of the names they are called are neither amusing nor indeed complimentary.

However, this verbal abuse does not concern the two Roberts in question. Messrs Crandall and Ayling are two of the most powerful men in the international aviation industry. And they will be confirmed as the undisputed kings of the aviation world if the alliance they are hatching between American Airlines and British Airways, the companies they respectively lead, goes ahead.

As befits men of their standing they did not get where they are today by having thin skins. These are hard men. Although outwardly very different they share a common streak of almost ruthless determination.

Crandall is the craggy, hardened industry man. Ayling is the urbane, smooth lawyer turned civil servant turned business executive. Crandall is the old hand, Ayling the young Turk. Bob could indeed be Robert's uncle.

Despite these superficial differences, when it comes to the question of the AA/BA alliance they are as one. Although they may be singing at different times and on different continents, there is absolutely no doubt that the hymn sheet is the same.

They both paint an eloquent picture of an international airline industry which is embarking on an era of great change. It is an era of opportunity for airlines, their customers, staff and investors. It is also an era which could throw out winners and losers. Both Ayling and Crandall intend to be in the former camp.

While their competitors have thrown up a ceaseless barrage of flak designed to bring down the putative alliance, both American and BA are resolute in their defence of a proposal which they believe will promote rather than squash competition.

"What our customers want is good networks, good schedules, good service and, above all, they want to fly safely," says Ayling. "The idea that they want the lowest fare at any price is a myth. We think the alliance with American will deliver the world's finest networks and schedules and will bring good prices because there will be more competition."

For that competition to materialise, the US and UK governments must secure a new open skies agreement. So far the talks are deadlocked. Without an agreement the American/BA alliance will not be given anti-trust immunity by the US. Without that immunity there can be no deal.

Access to Heathrow is central to the open skies talks. Crandall, however, believes that to see competition just in terms of routes from London to the US is to take too narrow a view of the question. The real battleground is not Heathrow but Europe.

"You have to remember that there are already 70 airlines competing between Europe and the US," Crandall says. "There are eight airlines flying between New York and Heathrow. There would be even more competition from the UK if there were an open skies agreement. Much is made of slots being the limiting factor. That is not the case. The current bilateral prevents more US carriers from serving Heathrow. Remove that restriction and you remove an important impediment to competition."

However, Crandall accepts slots at Heathrow are an issue but he believes the shortage argument is overstated. Both he and Ayling subscribe to the concept of a free market in those slots, which would ensure efficient distribution, but Crandall is convinced the problem is not quite so insurmountable.

"History will tell you that 45 new airlines have started Heathrow services in the last five years," Crandall says. "Virgin Atlantic has managed to increase its number of slots significantly. Every year BAA manages to make more slots available. It is not the barrier to competition that some would have you believe."

Both men believe the deal has to be seen in a European context. "Most of our growth in passengers in the last four or five years has been from passengers who did not begin their journeys in Britain," Ayling says.

"Over half the passengers who travel on our services to the US come from outside Britain. The real competition we are facing is with the airlines who are vying for those customers," he adds. "The real market is not Britain but the international market."

He points to those people in Yorkshire who travel internationally by flying via Schiphol airport in Amsterdam. KLM, the Dutch airline, has provided a highly efficient feeder service from Yorkshire and poses a competitive challenge which BA has to meet.

"The alliance is an opportunity for BA and American to survive and thrive for the benefit of the UK and US economies generally," Ayling says. "If we do not seize it then our colleagues in Germany and France will steal it away from us. The new Terminal Five at Heathrow will compete directly with Paris and Frankfurt. That is where the real competition will be. We would be insane if we wanted any other result than more people coming to London."

It is not unheard of for Britain to allow complacency to mask the necessity for vigilance. Ayling points to the shipping industry as an example of how market leadership can be swiftly eroded at the hands of more nimble and alert competitors. It is no surprise, for instance, that the Dutch government takes such an active interest in its aviation industry given that Schiphol airport and KLM account for around seven per cent of that country's GDP.

It is a pointed message to the British policy makers who have so far been unable to see their way clear to an open skies agreement which would pave the way for the BA/American alliance.

If Crandall had his way he would lock the two teams of negotiators in a room and not let them out until they had reached an agreement. That is in essence how the long-running bilateral deadlock between the US and Canada was broken. Ayling prefers to believe the regulators will be persuaded by rational and reasonable arguments which suggest the alliance is in the best interests of the economy, the community, the customers, the staff and investors.

"This is an opportunity to improve free trade which will not repeat itself," Ayling says. "The strength of feeling of our competitors shows ... that this is a very competitive proposal. I think there is an apprehension on their part that the protection they currently have will disappear with a new bi-lateral. It is the threat of competition which is motivating our rivals' objection. It should be what is motivating our policy makers to approve the arrangement."

What has raised questions in many people's minds about the argument that the alliance will promote competition is the demand by BA and American that their alliance is granted immunity from US anti-trust laws. It is perceived that those rules are the embodiment of consumer protection. Immunity, it is said, would give the giant alliance the opportunity to ride roughshod over the consumer. But while it is true that the laws are constructed with the public interest in mind, their very rigidity can actually operate against the consumer's better interests.

"It is important to understand that under anti-trust laws we are forbidden to talk to any other airline," Crandall explains. "We cannot talk about prices. We cannot talk about scheduling. We simply could not have the alliance we are contemplating."

It would, for instance, be in breach of anti-trust legislation for BA to offer its successful World Offers fare promotions to destinations which were part of the American network.

"If there were free movement of capital, we could simply merge our businesses," Ayling adds. "Once the single merged entity received regulatory approval then it would not be the subject of anti-trust laws. Since there is not free movement of capital we have to substitute alliances. It is not possible to conduct the business of those alliances without having exemption from the rules."

That anti-trust immunity has been granted to other alliances which have already been struck. However, it is the US negotiators' most important bargaining chip as they attempt to squeeze the best open skies agreement out of their British counterparts. It is a deal breaker.

Both Ayling and Crandall are confident that agreement on open skies will be reached. That confidence, in part, comes with the job but it is also based on a genuine belief on both their parts that, as we move towards the next millennium, the aviation industry can only serve its customers effectively by the creation of global networks.

"The global network of the future will provide 80 per cent of all the travel people will want to make," Ayling explains. "It has taken a long time in coming largely because, in the post-war era, governments demanded that the industry be co-operative. Now governments are demanding competition. The logical consequence of cosy co-operation falling away is the creation of competitive networks. It is bound to happen. The job of the regulators now is to catch up with this concept."

If they are having any difficulty in getting their minds round the concept then in the two Roberts they have two very determined men who will be more than happy to enlighten them. They have been portrayed as having demonic eyes. It is the jaws which are more of a worry.