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AIR BATTLE LOOMS AS BA LINKS WITH RIVALS

ALLIANCE: But Walsh says a full merger between BA and AA is not going to happen

Friday August 15,2008

By Andrew Johnson

BRITISH Airways sparked a major row yesterday after signing a joint business agreement with merger target Iberia and American Airlines to co-operate on flights between Europe and North America.

The three airlines said they had filed for special anti-trust immunity from US regulators for the revenue-sharing deal, which would effectively allow them to act as a single operator on transatlantic routes.

A tie-up between AA and BA has failed twice before because of regulators. The last time was in 2001.

Analysts think the alliance would pave the way for a full merger once US regulations were relaxed. But BA chief executive Willie Walsh denied this was the case.

Virgin Atlantic president Sir Richard Branson said: “Make no mistake, if this monopoly is approved it will be third time unlucky for consumers.”

Walsh said the arguments Branson put forward had been out of date for years. The competitive environment had been transformed by the Open Skies agreement letting any airline fly between Heathrow and the US, he said.

He was “very confident” the tie-up would be allowed. BA is thought to be willing to give up Heathrow slots in return for regulatory approval.

Other airlines have teamed up to create two major alliances after being accorded anti-trust immunity. The Star Alliance includes Lufthansa and United Airlines, and SkyTeam’s members include Air France and Delta Airlines.

Under the terms of the new agreement, the three airlines will share revenues, costs, technology and procurement, and co-operate on ticket pricing and marketing.

Walsh said this would result in lower fares, more attractive schedules and a company better able to withstand the shocks in the industry. Unions fear job cuts would result but Walsh said it was not about costs.

Branson said BA and AA would have more than 60 per cent of Heathrow slots, and the airport was full.

But BA said the alliance would have only 21 per cent of the total Europe-to-US market, less than Star and SkyTeam.