MARK PILLING LONDON
The rebranding of bmi british midland was supposed to be followed by the launch of its new transatlantic services out of London Heathrow. So how distant is the new UK-US bilateral which could bring bmi in reach of its goal?
Nobody is listening to Sir Michael Bishop. Or that is how it must seem to the chairman of just rebranded bmi british midland. For the past three years Bishop has been lobbying for rights to fly the Atlantic from London Heathrow. Indeed, since bmi joined the Star Alliance last summer he has promised Europe's first competition between alliances out of a major hub. Yet such a strategy can go nowhere unless the US and UK governments unblock the impasse over liberalising the restrictive Bermuda II bilateral.
Indeed, bmi's new brand, revealed with great fanfare in February, was supposed to prepare the carrier for transatlantic services out of Heathrow this summer. In the event, it has had to console itself with the launch of services from Manchester to Chicago and Washington. But at the same time Bishop is stepping up his campaign for open skies by asking the European Commission (EC) to investigate whether Bermuda II goes against European Union (EU) competition law, acting against the interests of competition and consumers.
Yet a European solution will take time and any rapid progress in US-UK talks seems unlikely. There are distractions aplenty. A general election is expected in the UK by May, while a new US administration is still installing itself in Washington and already has enough to deal with in the shape of airline industry consolidation. Anyway, practical politics dictates that the UK will not agree to make substantive moves towards open skies until it is in a position to secure antitrust immunity for British Airways and its transatlantic alliance. In fact, the UK Government has now acknowledged as much, much to the annoyance of bmi. "The government is meant to treat all UK companies equally," it fumes.
| US-UK passenger traffic 1999 | ||
| Scheduled services | Passenger thousand | Share |
| British Airways | 6,886 | 40.2% |
| Virgin Atlantic | 2,996 | 17.5% |
| UK airlines total | 9,882 | 57.7% |
|
|
|
|
| American | 2,380 | 13.9% |
| United | 2,070 | 12.1% |
| Continental | 1,023 | 6.0% |
| Delta | 741 | 4.3% |
| Northwest | 378 | 2.2% |
| US Airways | 286 | 1.7% |
| TWA | 146 | 0.9% |
| US airlines total | 7,024 | 41.0% |
|
|
|
|
| Air India | 119 | 0.7% |
| Aer Lingus | 43 | 0.3% |
| Air New Zealand | 34 | 0.2% |
| Kuwait Airways | 24 | 0.1% |
| Fifth freedom total | 220 | 1.3% |
| TOTAL scheduled | 17,126 | 100.0% |
|
|
|
|
| Charter services | Passenger thousand | Share |
| Airtours | 378 | 33.7% |
| Air 2000 | 236 | 21.0% |
| Monarch | 218 | 19.4% |
| Britannia | 184 | 16.4% |
| Others* | 107 | 9.5% |
| TOTAL charter | 1,123 | 100.0% |
| TOTAL ALL SERVICES | 18,249 |
|
| Source: UK CAA airport statistics (include non-revenue passengers) *Other charter carriers are BA, Caledonian and American Trans Air. | ||
Although BA's alliance with American Airlines was put in place four years ago, hopes of immunity were stalled by the competition authorities, not in Washington, but in Brussels. And there lies a central problem: how to find a formula that the EC can approve?
The UK national carrier has toyed with alternative alliances. Last year's BA/KLM merger proposal gave an excuse to look at new transatlantic combinations, but since those talks broke down BA has instead returned to the task of rebuilding its relationship with American. "They are showing signs of loving each other dearly again," notes one insider.
"BA's top objective is to do something deeper with American - at an acceptable price," says Chris Avery, analyst at JP Morgan. The EC's price for antitrust immunity was simply too steep the first time round. Chris Tarry of Commerzbank estimates that the demand for BA to surrender 267 weekly slots at Heathrow would have resulted in annual losses of £400 million ($600 million) for the airline. "This was unacceptable and it was right not to do it," he says. Now BA and American are expected to work on improving their existing alliance, but in gradual steps rather than with a big bang. But is time running out for BA? Business and consumer interests on each side of the Atlantic complain that a lack of open skies is bad for both groups. "How long can we go on waiting for BA to sort itself out?" asks bmi.
The theme is taken up by Leo Schefer of US Airports for Better International Air Service, a lobby group representing major US gateways. "If the UK is not careful it might find restrictions [at Heathrow] cause the big alliances to bypass London," he says. "Strategically, London cannot afford this."
At the moment, however, the real pressure is coming from bmi. Virgin Atlantic is happy enough with the status quo for now, feeling that no deal is better than a bad deal, while the US majors face issues closer to home. "Generally, the USA is going to be mightily distracted for the next year or so with airline industry consolidation," believes Jeffrey Shane, a partner at lawyers Hogan & Hartson in Washington, and a former US assistant secretary of transportation.
Michael Goldman of Silverberg, Goldman & Bagileo, agrees that the US situation will slow things down, and that it will be the summer, at the earliest, before any new moves. His firm represents the Washington area airports which advocate another amendment to Bermuda II as an interim step towards open skies. "This will allow other US carriers to fly into Heathrow on existing routes, opening the airport up in a measured way, "he says. In return, bmi would be able to go ahead with its Heathrow plans, and BA would be allowed to move some important routes to Heathrow that it can now only serve from Gatwick - for example Dallas/Fort Worth, Atlanta and Houston.
| North Atlantic - Top country pairs 1999 | ||
| Country pair with US/Canada* | Passenger million | Share of total |
| UK | 16.56 | 37.2% |
| Germany | 7.12 | 16.0% |
| France | 5.17 | 11.6% |
| Netherlands | 4.55 | 10.2% |
| Italy | 2.60 | 5.8% |
| Switzerland | 1.96 | 4.4% |
| UK-Canada* | 1.82 | 4.1% |
| Spain | 1.64 | 3.7% |
| Ireland | 1.36 | 3.1% |
| Belgium | 1.29 | 2.9% |
| Denmark | 0.45 | 1.0% |
| Total W. Europe | 44.52 | 100.0% |
| Note: *From/to USA except Canada-UK Source: IATA | ||
Common aviation area
However, the greater prize is US-EU open skies. The EC has already floated the concept of a Transatlantic Common Aviation Area (TCAA) - an aviation free-trade area between the USA and Europe. That could take on new focus if EU ministers give the EC a mandate to begin negotiations with Washington this year. "The TCAA is the only way of delivering full liberalisation on the North Atlantic," says David Batchelor, head of international aviation policy at the UK Civil Aviation Authority.
Even if Brussels does get the green light to negotiation, the USA is not expected to be too keen. First, the new US administration already has enough on its plate. Second, it may suit US carriers to keep the focus on US-UK liberalisation. Their priority is Heathrow access, not an open skies deal with Europe that would feature an easing of US airline ownership rules. There are deep reservations in the US labour and defence communities on this point.
European carriers are determined to push the TCAA project, but they do recognise how critical the US-UK market is in this whole debate. Nobody wants to give it away lightly. However, the ultimate prize for Europe is a true open skies deal with the USA, it argues. "TCAA could provide a framework for the worldwide reorganisation of air transport," says Kees Veenstra, deputy secretary general of the Association of European Airlines.
Although the political manoeuvring will continue, no one sounds too optimistic that a transatlantic breakthrough can be achieved in the near term. "There are so many uncertainties that, in many ways, the situation has become more difficult to predict," says Shane. "At the working level, the USA and UK have given up the notion of any big [transatlantic] deal," believes Goldman.
With so much at stake, it is not surprising how long it is taking to achieve transatlantic harmony. Patience all round is clearly a virtue, and bmi's Bishop has already demonstrated that. "It took me nearly three years to break into [UK] domestic competition," he notes. Although Bishop is frustrated by the delay in launching Heathrow transatlantic services, he remains optimistic that a resolution will come in the next 12 months, and that his airline will begin service in spring 2002.
Source: Airline Business
