Alan George/BRUSSELS
KLM's low cost carrier Buzz, and either British Airways' CityFlyer operations between London Gatwick and Amsterdam Schiphol or KLM's London Stansted-Schiphol service may have to be sold as the likely price for approval of the planned merger of BA and KLM by the European Commission (EC), Flight International can reveal.
In a further effort to allay competition concerns, the airlines have offered to reduce fees charged to rival carriers with passengers interlining on BA/KLM flights for journeys between Aberdeen and Gatwick, London Heathrow and Schiphol.
BA and KLM announced their merger plan in June and asked EC regulators to "commence informal investigations" prior to formal notification of the plan. In response, the EC's Merger Task Force (MTF) last week sent European airlines a five-page questionnaire seeking views on several scenarios, plus "potential remedies" aimed at securing effective competition after a merger. Responses are due by 7 September.
The paper, supplied exclusively to Flight International by airline sources, notes that Buzz, an operation of KLM subsidiary KLM uk, competes directly with BA's low-cost subsidiary Go between Stansted (where both are based) and Milan, Paris, Frankfurt, Dusseldorf, Berlin, Hamburg, Vienna, Lyon, Marseilles and Helsinki.
It concludes that "a divestment of Buzz would address potential competition concerns that might arise in relation to these routes", adding that, though it is "currently loss-making", KLM "expects Buzz to break even by the summer of 2002 and to return a profit for the financial year ending March 2003".
KLM also competes with BA via KLM uk's own Stansted-Schiphol route, and the document suggests divestment of the assets of this operation, which earns over £18 million ($27 million) per year, "would result in BA/KLM's combined frequency share on the London-Amsterdam city pair falling to 57%". It adds that by divesting both this operation and Buzz, "BA/KLM would be effectively divesting the Stansted operations of KLM uk". The latter would retain its Schiphol-based operation serving 11 UK cities.
Alternatively, the paper suggests, BA could divest the Gatwick-Schiphol operations of its CityFlyer subsidiary, a move which would reduce BA/KLM's combined London-Amsterdam frequency share to 59%. CityFlyer flies to Amsterdam 58 times weekly, and earned £20.5 million in the year to 30 March 1999.
On services from Aberdeen to Heathrow, Gatwick and Amsterdam, BA and KLM impose 'provisos' on tickets sold by other airlines, guaranteeing them a fee higher than a fare based solely on distance. Given that a merger would secure a virtual monopoly on these routes, BA/KLM have offered to lift these provisos to allow rivals greater access to Aberdeen originating feeder traffic until the rivals have established a 40% market share.
EC regulators are also considering the merger's impact on intercontinental competition in the context of various alliance scenarios, including BA/KLM alone, BA/KLM allied with KLM partner Northwest Airlines, BA/KLM with Northwest and its ally Continental Airlines, and BA/KLM minus BA's ally American Airlines.
The US response to the BA/KLM plan remains crucial, with Washington so far indicating that if controlled by BA, KLM would lose access granted via the US-Netherlands open skies treaty and that the relevant accord would be the more restrictive US-UK bilateral. A UK-US open skies deal might remedy this, but talks remain bogged down.
Source: Flight International
