American Airlines chairman Bob Crandall was more wrong than he was right when he said 15 months ago: "Code-sharing is profoundly anti-competitive and, in the long term, will inevitably reduce the number of air carriers competing for your business. When airlines team up and code-share, they are able - by means of pretending to be a single carrier - to force other, non-combined carriers out of a market. When this happens-consumers lose all the many benefits of competition."
He was right, when he said that code-sharing, will reduce the number of carriers competing for a particular piece of business, but he was wrong when he said that this was necessarily anti-competitive. True competition obtains only when those who compete do so on a realistic, profit-making, basis. Those airlines, which operate loss-making services, to serve agendas other than money making are not "competing". It is they who distort the market. The best competitive markets are those in which there are three or four players, all making honest profits.
When Crandall said that the big code-sharing carriers would force out the small, non-combined carriers, he was probably right - but when he said that they would thereby deprive the consumer of all the many benefits of competition, he was very wrong. Those benefits are offered by competing carriers to entice passengers or freight their way. They can be provided - and a great deal more reliably - by three big carriers just as well as they can by a myriad of small weak ones.
There is little evidence to suggest, that airlines agree that code-sharing restricts competition, or leads to raised fares - a forlorn hope indeed on the North Atlantic. Even if they succeeded, the scent of higher prices would only serve to attract yet more competitors. In reality, what code-sharing airlines hope to do is to gain access to markets in which the partners are stronger than they are.
This is why Crandall went on to say, 15 months ago: "Even at American, where we have been vociferous in our opposition, we have reached the conclusion that, if we can't beat them, we had better join them." Which is why, in turn, American Airlines has entered into the biggest code-share of them all, with British Airways. He, and his competitors, can rest assured, however, that what American is doing will not lead to anti-competitive, anti- consumer behaviour. Why?
The price of approval for this code-share will undoubtedly be the opening up of Heathrow to those smaller, less competitive, airlines which have not reached, or cannot reach, such major deals of their own. They have bleated Crandall's complaints about code-shares back at him, without reading the rest of his script.
Without the American/BA code-share, it is unlikely that the UK and US governments would have been forced back to the table to sort out a new air-services deal. Now, the prospect is that the UK will at last sign an agreement to open skies. That can only benefit the cause of competition in the UK and worldwide, far outweighing any particular quibbles over the gains it makes for BA and American.
Code-sharing is, in any case, a compromise brought about precisely because markets are not open. In a less political industry, the consolidation would have come through mergers and acquisitions. American would have bought a suitably situated European carrier, and BA would have acquired the rest of USAir, or similar.
Despite the lurid headlines, they will not have a monopoly position in the world. They face real competition from link-ups such as those of United Airlines/Lufthansa/SAS/ KLM/Northwest, or Delta/Swissair/ Sabena/Austrian.
Each such partnership is aimed ultimately at what must become the standard for the airline world of the next century - the global brand. Those who are actively establishing those brands now are doing it right: those who oppose them are getting it wrong.
Source: Flight International
