Faced with declining yields across the North Atlantic, British Airways and American Airlines have confirmed plans to postpone a full alliance for up to five years. But their revised plans for limited codesharing have failed to dispel US opposition.
BA now plans to codeshare with American in the US domestic and European Union markets - which it argues it can do under the existing Bermuda II bilateral - but to delay all other significant co-operation until a US-UK open skies deal has been implemented. In this way the two partners hope to avoid the immediate need for anti-trust immunity and the requirement to give up slots at London Heathrow at a time when yields, particularly for first class and business passengers, are falling.
A drop of 4.3% in yields contributed to the fall in BA's half-year pre-tax profits by 10.5%, provoking the flag carrier to cut its planned capacity growth back from 8% to 2% and reallocate Asia-Pacific capacity. BA also needs to boost revenue and retain premium traffic, in a market where, as Chris Allen, head of competition and industry affairs, admits, "-the Star Alliance is more competitive".
According to Allen, BA and American intend to push ahead "-with all things that don't give rise to significant competition concerns". Price co-ordination, revenue sharing, capacity and schedule planning will be held back, he says. "We see no reason why we cannot carry out a certain amount of codesharing 'behind and beyond' US and UK gateways, on routes that the two airlines do not currently both serve. Nobody serves London-Las Vegas non-stop. Because everybody has to compete on that, our codeshare with American wouldn't matter," he adds. BA wants to maintain the joint frequent flyer programme and add shared lounges with American.
BA now wants a UK-US open skies deal - the last talks were broken off by the US in October - to be implemented in stages over a four to five year period, similar to the US-France bilateral earlier this year, says Allen. This would push back "any compulsion" to give up slots to the end of the new bilateral's implementation, he says. However, "BA could speed up the process by giving up slots on a voluntary basis," he adds.
According to a London-based airline analyst a four to five year delay in opening up Heathrow will "-give BA time to replace its ageing Boeing 747 fleet with the smaller, more capital efficient 777s, which have a higher proportion of premium class seats".
The phasing in of open skies is supported by UK rival British Midland. "It will make much more sense for the industry,' says Austin Reid, managing director of British Midland, which has applied for licences for 10 transatlantic routes out of Heathrow.
But USregulators have already stated that they will block a more limited alliance if Heathrow is not opened to competition. A source at the European Commission, meanwhile, says the competition directorate has not been officially notified of BA's change of plan. But he adds that such a plan would still need anti-trust immunity.
Lufthansa's conviction that its Star Alliance with Lufthansa is being unfairly treated by the EUcompetition authorities is growing. Star, which faces the loss of 108 weekly slots at Frankfurt, is expecting a final decision in early 1999.
Ulrich Schultze-Strathaus, head of international and environmental affairs at the German carrier, argues that the Commission's intervention in all transatlantic alliances was motivated by a desire to be fair. The Commission needs to rethink its approach given the changed circumstances, he says. He wants BA to submit a new proposal, and the Commission to reschedule the implementation of its conditions for anti-trust immunity, so that all the alliances under investigation are affected simultaneously.
Strathaus adds that, if BA gets its way, much of the excess US capacity from Asian routes, which under a new UK-US bilateral would have been redeployed in the transatlantic market from Heathrow, will be "-dumped onto the continental European market".
Source: Airline Business
