BA / American deal seen as 'must do'
10.07.08
British Airways and American Airlines need to complete a transatlantic deal to link operations if they are to cope with high fuel costs and thwart rival alliances Reuters reports. The two are close to agreeing a revenue-sharing agreement that would create a major force controlling over 50 percent of the lucrative flights between London and the United States, a 'source' told the news agency.
BA and AA would need regulators to grant the combined entity anti-trust immunity which would allow them to collude on transatlantic routes and pricing alongside a third partner, Spain's Iberia. Four analysts polled by Reuters think there is a better than 50/50 chance an approval will be granted.
Andrew Fitchie, an analyst at Collins Stewart, said: ‘This is a need to do deal. The high oil price makes many airline operations unsustainable, (and) this sort of deal allows them to get to grips with supply of seats and pricing.’
The alliance is also seen as a shot back at BA's arch rival Air France KLM, which has forged a transatlantic alliance with Delta and Northwest. Gert Zonneveld at Panmure Gordon told Reuters that the move would be both defensive against the current climate and an offensive strike against rivals. He said: ‘They can come up with a frequency and schedule that is better than what the others have, while also making cost savings.'
Two key issues are whether regulators will grant anti-trust immunity and subsequently how they will view the pair's dominance of Heathrow and some UK-U.S. routes. Virgin Atlantic spokesman Paul Charles told Reuters there were routes between London and US cities such as Chicago and Boston that are only operated by BA, AA and Virgin - thus reducing competition from three to two carriers in the event of an alliance.
BA and American have tried twice before to gain immunity, but on both occasions were told they would only get it if in turn they divested a major part of their stranglehold on Heathrow - a price they were unwilling to pay. But since the launch of the 'Open Skies' agreement earlier this year, any US or EU airline may fly across the Atlantic to Heathrow. Analysts suspect that this major industry change will make regulators more sympathetic.
Andrew Lobbenberg told Reuters that there is a good chance that approval would be granted, noting Air France had already won such backing. He said: ‘The combination of BA and American would have a lower market share than the 'Skyteam' immunised grouping,’ referring to the Air France KLM-Delta-Northwest deal.
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