BA could hit turbulence from Europe over plans to strengthen ties with AA

Published on Monday 26 October 2009 20:40

BRITISH Airways was hit yesterday by a troubling headwind that could upset its plans for closer ties with American Airlines and Spain's Iberia.

BA and its Oneworld alliance partners had planned to deepen the pact to capitalise on the Open Skies agreement between the United States and the European Union, with the focus on routes between the US, Mexico, Canada, the EU, Norway and Switzerland.

But while a favourable decision on the tie-up is widely expected from US antitrust regulators this week, it has emerged that the European Commission may play hardball on the deal due to competition concerns.

Industry sources say Brussels, which is to rule on the application at a later date, is minded to insist the three airlines give up take-off and landing slots for their transatlantic alliance to go ahead.

Earlier this month, EU regulators said the latest plan may violate antitrust rules on restrictive business practices.

It is thought the EC has found that the proposed tie-up was likely to result in "appreciable competitive harm" on seven Europe-US routes.

Remedies may include the transfer of airport slots to other carriers, people familiar with the situation say.

Such alliances are seen as a lucrative alternative to mergers and large-scale investments.

One analyst said: "The attitude of the EC was always a wild card here.

"Most believed the US Department of Transportation would give BA and its partners the go-ahead, even if it also insisted on some sort of trade-off with landing and take-off slots, primarily at Heathrow.

"But now it seems even if BA got away with it stateside the EU are minded to be tough on this issue, also using the slots as a stick."

A key argument of BA, AA and Iberia to the US regulators has been that they want a level playing field with the established Star Alliance collaboration between Lufthansa and American firm United Airlines, and the SkyTeam venture between Air France-KLM and American airline Delta.

However, critics of the Oneworld transatlantic proposal – including Sir Richard Branson's Virgin Atlantic – say it is not a fair comparison.

One source cited the fact that BA is bigger on flights to the US – a key source of its profits – than both Star Alliance and SkyTeam combined.

It has been estimated that a BA/AA/Iberia transatlantic joint venture would have 80 per cent of flights from Heathrow to Boston and 70 per cent to Miami.

BA has about a 40 per cent market share at Heathrow, an airport at which it is very difficult to get slots.

City airline analysts say it is likely the EC may want to influence the BA/AA tie-up before it takes off rather than having to deal with the more complex procedure of unwinding it once it is established.

One said: "This could be the reason for the timing of the EC's latest concerns becoming public. It is a shot across the bows that the US regulators will obviously see."