The impending alliance between American Airlines and British Airways confirms that US international aviation policy over the last two years has had a dramatic impact on the global airline industry.
BA and American officials were preparing the accord at presstime. Sources say that a two-year discussion finally yielded agreement on a far-reaching codesharing alliance. At the outset the deal will not include any equity stakes but will see BA's four-year equity alliance with USAir continue. A template for the American-BA alliance is BA's 24.6 per cent equity partnership with Qantas, which has seen in both carriers rationalising capacity and acting as a single entity between the UK and Australia in everything but corporate identity.
Bilateral restrictions will prevent similar integration for BA and American between London and US gateways, but there could be immediate benefits. These include codesharing for American beyond Heathrow and for BA beyond American's hubs at Chicago, Dallas and Miami. 'American would get a European partner to compete with the other alliances on beyond London traffic; BA would get better access to the US market and South America via the Miami hub,' says Washington aviation lawyer Michael Goldman.
Recent approval by the US Department of Transportation for a series of antitrust immunity applications, including one by American-Canadian International (the latter already a BA partner) and more importantly between United Airlines and Lufthansa, apparently added unstoppable momentum to BA's negotiations with American. BA terms antitrust immunity 'a necessary condition' for the alliance, acknowledging aeropolitical consequences on the UK-US bilateral. 'Any deal would be a catalyst for a far-reaching liberalisation agreement,' says a BA executive. The source adds that the UK will follow Germany's lead by making liberalisation dependent on granting antitrust immunity on the alliance. 'To compete, we need [immunity] as well. If we don't get it, [open skies] won't happen.'
US officials could barely contain their excitement that they 'finally have some leverage' to negotiate for the holy grail of US international aviation policy: unconstrained access to London's Heathrow, the world's most sought-after gateway. Though the two countries have a liberal bilateral with the exception of London's airports, the US has never been in a position to demand that the UK let more than two US airlines (American and United) into Heathrow.
However excited US DOT officials are at the prospect of US-UK open skies, the route to it is impeded by the department's other airline constituents, who are likely to demand immediate access to Heathrow. This will test the airport's capacity limits, as well as previous statements by US officials that the rights to serve Heathrow - if not the actual landing slots - would be enough.
BA's alliance with American comes after a frustrating attempt to crack the US markets through its USAir investment. Though USAir provides an important presence for BA on the US east coast, BA sources say that the carrier's poor financial position makes it difficult to judge how long the alliance will last. One source speculates: 'American can weaken USAir by diverting BA traffic over its Chicago and Dallas hubs, and then wait for Steve Wolf voluntarily to pull USAir out of the BA alliance.'
The two carriers considered many options, including American taking over BA's stake in USAir. American, however, baulked, and BA now says that 'huge managerial and personnel problems' made this approach unattractive, as did a desire 'to keep the deal as simple as possible to get it approved.'
BA's longstanding wish to own a controlling stake in a US airline seems far from reality. However, the US DOT has supported legislation in Congress that would increase the limit on foreign voting control of airlines from 25 per cent to 49 per cent. Says a BA official: 'The alliance may initiate the change in law.'
Though the alliance is a by-product of the quickly consolidating global airline industry, there is no doubt it will add to the far reaching effects of a pro-alliance policy, officially initiated by the DOT transportation secretary Federico Peña in 1994.
But with unfettered liberalisation continuing apace, some analysts are warning of the implications for long-term competition and the evolution of international airline cartels. 'I don't think DOT policy has been thought through. But the airlines are going to cash in wherever they can,' says one senior airline official.
M Jennings/L Jones
Source: Airline Business
