What a mess. The lobbying machines pushing for and against the proposed American Airlines-British Airways alliance have moved from overdrive into hyperdrive. Thousands of trees have been felled to produce the paper required for submissions, opinions, complaints and press releases. Shares in Panasonic jumped through the roof as regulatory agencies and media organisations ordered new fax machines to dedicate to receiving all the reams of information.
Misinformation and media manipulation have reached legendary proportions. Newsreaders erroneously promote the alliance into a full-scale merger (now that would really generate some regulatory obstacles). Headline-writers come up with such gems as 'Brussels brands BA chief liar as row escalates' (The Guardian) and 'Brussels bullies won't ground our jumbo merger' (Daily Mail). As the UK gears up for a general election in which further European integration is a crucial issue, the British Airways-American Airlines deal has been hijacked by the ruling party's Euro-sceptics.
Of course, there is nothing new about airlines and their alliances being used as political pawns. But the latest transatlantic mega-alliance is causing particular problems because of its size, the complexity of the market, and jurisdictional overlap. In short, because the regulatory bodies involved in the approval process lack a clearly defined policy, it's a matter of 'make up the rules as you go along, to suit the current political environment.' There is a danger that this could result in market distortions which are in nobody's interests.
Hitherto, only the US has anything like a coherent policy on mega-alliances. As far as Washington is concerned, they are fine as long as there is an open skies agreement in place and, in the case of United and Delta, subject to 'carve outs' on certain less competitive routes. (Exactly how these 'carve-outs' are supposed to work, and their practical effect, remain a mystery, but let that pass for the moment.)
Naturally, both domestic and international politics have played their part - every airline has its tame politician or two, and last May's summit meeting between President Clinton and Chancellor Kohl made it politically expedient to overrule some of the US regulators' concerns and approve the United-Lufthansa linkup, so as to achieve a significant foreign policy coup by signing an open skies deal with Germany.
The European states nodded through the alliances involving Northwest, United and Delta because none had competing major transatlantic carriers within its borders. The European Commission was also silent about the alliances, although it objected to the accompanying open skies deals because it wants to negotiate a joint agreement between the US and all 15 European Union members.
The BA and AA alliance is being scrutinised much more closely than the others, and by more parties. This is not surprising in view of the alliance's scope, the extensive route overlap between the two would-be partners, and the dominance it could give them at slot-constrained Heathrow. Yet failure to approve the alliance could leave both carriers dangerously vulnerable in the face of the other alliances. And as scrutiny becomes more politicised, so the chances of a fair outcome are falling.
The UK government will approve the alliance subject to conditions whose severity depends on how you study the small print. BA and AA will have to give up 168 weekly slots at Heathrow, but a third are only leased out and 12 daily return flights seem insufficient to satisfy the demands of the other carriers. Moreover, competitors will be restricted by the stipulation that a pair of daily slots is to be earmarked for each of two markets - Boston and Dallas-Fort Worth.
'A mere 168 slots is nowhere near enough,' say US government negotiators, most major US carriers, and the European Commission. 'Selling slots is a no-no', says the Commission - even though senior officials had initially signalled their support for trading, and most airlines do so behind closed doors anyhow. 'We have the right to investigate this alliance and we don't like it', insists the Commission. 'Mind your own business,' comes the reply from the Brits.
Halfway through the approval process of the fourth in a series of transatlantic linkups is no time to be deciding who has jurisdiction and what criteria are required for approval. Admittedly, the Commission is investigating the other alliances as well, but it is unlikely Brussels will then unravel the alliances at this stage. The best hope for a fair solution lies in finding an appropriate compromise in which, at the very least, all the players are equally unhappy. If there is one to be found.
Source: Airline Business
