British Airways link-up with American Airlines set to get go-ahead

Published on Saturday 24 October 2009 14:49

BRITISH Airways is expected to get the regulatory green light from the US Department of Transportation this week on its proposed transatlantic tie-up with American Airlines, despite fierce opposition from one of its main rivals, Virgin Atlantic, and some political opposition.

It is believed that American regulators have accepted the two airlines' argument that they want a level playing field with the established Star Alliance collaboration between Lufthansa and United Airlines of the US, and the SkyTeam venture between Air France-KLM and American airline Delta.

However, critics of the BA/AA tie-up have described it as "anti-competitive". They say it is possible that the DoT will again insist on certain measures, including BA giving up hundreds of slots at Heathrow, and that could force the two airlines to walk away from the deal.

In 2001, the DoT agreed to a collaboration between the two airlines with the condition that BA agreed to give up 224 slots at Heathrow, where it currently has about a 40 per cent market share. BA was not prepared to do so and the deal collapsed.

Sources say it is still possible that the European Commission will unpick a new joint venture at a later stage. The agreement of both European and US regulators to BA/AA co-operation, mainly on lucrative transatlantic routes, is necessary. The EC has made public its concern that the deal may breach competition rules. Star Alliance and SkyTeam are also under EC investigation but have anti-trust immunity from US regulators.

Douglas McNeill, transport analyst at broker Astaire Securities, said: "I think it is odds-on that BA and AA will get the go-ahead. Although a couple of senators have written to the DoT querying the alliance, there has been no serious lobby against it."

BA has argued that it wants to compete fairly against Star Alliance and Sky Team, which collaborate across the Atlantic out of airports such as Frankfurt, Paris, Amsterdam and Zurich. "After all, the US has blessed those alliances.The level playing field argument is strong," one source said.

One of the biggest opponents of a BA/AA link-up – which would allow those airlines to collaborate in areas such as shared revenues, code-sharing and frequent-flyer offerings in a bitter downturn for the aviation industry – has been Sir Richard Branson's Virgin Atlantic.

A Virgin spokesman said ahead of this week's decision: "If the regulators allow BA and AA to merge they would be creating a monster monopoly which would harm consumers. The job of regulators is to protect travellers from higher prices and lack of choice, which would sadly happen if this merger was allowed."

Opponents have alleged that BA/AA is "not comparing apples with apples" in citing the Star Alliance and Sky Team partnerships. One source said: "BA is bigger transatlantically than both those rivals put together, and Heathrow has far fewer slots available to new rivals than the likes of Paris and Frankfurt, so there would be a far greater constraint on competition at the British hub."

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