If you are BA, this alliance is beautiful. 'Consumers will win twice from the alliance - from the better service and value the alliance itself will provide AND from the additional competition it will bring about.'
If you are Delta Air Lines, it's a beast. Executive vice-president marketing Robert Coggin says: 'This transaction is poison for competition. Allowing the two dominant participants to operate as a single entity would effectively preclude any real competition on most US-UK services.'
Not surprisingly, American expresses a different view. 'This new Alliance [note the capital A] . . . provides a wonderful opportunity to rectify the many shortcomings of Bermuda 2, which has stifled UK and US airlines for many years. It is a win-win transaction for all affected constituencies.'
Except Virgin Atlantic, whose chairman Richard Branson has called the alliance a 'monopoly from hell' and likened it to a merger of Coca Cola and Pepsi.
And so it goes on. It comes as no surprise that plenty of statistics are included in the piles of paper generated by BA's third attempt to form a successful transatlantic alliance. Naturally, the view given by the figures depends on who is presenting them.
Virgin's data says BA and American had a passenger market share of 61 per cent between the UK and US in 1995, compared to Virgin's 13 per cent. The Alliance's share was even higher on certain routes - 70.8 per cent to New York/JFK, 76.5 per cent to Miami, and 100 per cent to Dallas.
BA puts a different spin on the figures. Its combination with American would cover only 35,873 city pairs, comparable with Northwest-KLM's 35,540 and the Delta group's 33,507 but much less than the United-Lufthansa-SAS tally of 55,212. Furthermore, BA-American's total passenger numbers last year amounted to 111.4 million, less than the United group's 129 million.
It won't be a monopoly, says BA. 'Already 25 airlines compete between the UK and the US - eight between Heathrow and JFK alone. The real battleground is Europe-US, where we jointly have a 24 per cent market share and compete with more than 70 different airlines.'
Among the smokescreens set up by the spin doctors, several facts stand out. First, BA and American are hardly acting out of a sense of philanthropy. Whoever heard of two competitors getting together to reduce prices for their customers? The truth is that they are creating this alliance (sorry, Alliance) to create a bigger network to enable them to maximise their market share and profitability.
That said, it seems unreasonable to allow United, Delta and Northwest to form transatlantic alliances with antitrust immunity and then deny American the same opportunity. The only difference between this latest Alliance and the rest is that, by some measures, it is bigger.
The real issue is deciding what conditions to attach. Approval will be conditional on a US-UK open skies deal, which will allow all US carriers into Heathrow and will remove the current allocation of specific routes to specific carriers. This deal will have to include fifth freedoms to enable proper network competition.
However, this is insufficient. The legitimate concerns of BA and American's competitors can only be met through other measures, including a mechanism to allow them sufficient slots at Heathrow, JFK and Chicago. Other regulatory options include forcing BA and American to limit frequency and capacity on routes where they dominate, and so-called 'carve-outs', whereby the carriers are forbidden from discussing fares on certain crucial routes. BA could also be forced to cancel its alliance with USAir.
The authorities on both sides of the Atlantic will have to be careful not to discriminate unfairly against BA-American. If the conditions are too onerous, the two carriers will walk away from the deal, and they will be left at a disadvantage in the market place. Equally, if they are too lax other competitors will suffer unduly.
Source: Airline Business
