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BA, American and Iberia form new alliance

British Airways PLC, American Airlines and Spain’s Iberia SA said Thursday they have signed a revenue-sharing deal.
/ Source: The Associated Press

British Airways PLC, American Airlines and Spain’s Iberia SA said Thursday they have signed a revenue-sharing deal that — if approved by regulators — will see the trio set prices together and share seat capacity on trans-Atlantic flights.

The airlines said that they planned to file for worldwide antitrust immunity from U.S. authorities for the deal later Thursday. They will also notify European regulatory authorities.

The agreement is the closest alliance the trio can form under strict U.S. airline ownership laws that all but rule out a full merger and follows two earlier failed attempts by BA and AMR Corp.’s American to forge closer ties.

Rival carrier Virgin Atlantic Airways claims the deal will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers.

“Make no mistake, if this monster monopoly is approved it will be third time unlucky for consumers,” said Virgin Atlantic president Richard Branson. “It will still be bad for passengers, bad for competition, and bad for the U.K. and U.S. aviation industry.”

However, BA chief executive Willie Walsh argued that customers will benefit from improved connections, flight schedules and frequent flyer programs. He added that current high ticket prices are being driven by high oil prices, and discounted claims that fares would rise as a result of the deal.

Walsh also said that closer cooperation would also help the airlines cut costs in the current difficult economic conditions.

“I believe this is also good news for the industry,” he said. “It’s another small step towards consolidation.”

Walsh said the antitrust filing with the U.S. Department of Transportation, which includes the trio’s fellow oneworld alliance members Finnair and Royal Jordanian, will allow the group to compete more effectively with the other major airline alliances, Star and SkyTeam, which already have antitrust immunity on trans-Atlantic flights.

BA and AMR Corp.’s American have failed in the past to win an exemption from U.S. competition laws to work more closely together because of their dominance at London’s Heathrow Airport, where the pair have more than half the capacity to and from the U.S.

However, Walsh argued that the competitive situation has changed since the “open skies” agreement between the U.S. and the European Union came into force in March, allowing airlines to fly to and from any point in the U.S. and any point in the EU.

Walsh said that he did not expect regulators to again insist that the carriers give up landing and takeoff slots at Heathrow — as they did in 2002 when the pair last sought antitrust immunity — and said he was confident the deal would pass muster.

“I think the environment has significantly changed,” he said, noting that some 42 airlines operate nonstop between the EU and the U.S.

Walsh argued the Star alliance, which includes Lufthansa, United, Singapore Airlines and Air Canada, has 35 percent of the trans-Atlantic market, while SkyTeam, including KLM, Air France/KLM and Delta, has 28 percent. The oneworld alliance has 21 percent, he said.

However, Branson, who earlier this week wrote to senators Barack Obama and John McCain to warn that the proposed alliance would severely damage competition, said that “Open Skies” has not delivered the greater competition that was promised because Heathrow is full.

Branson added that the current economic slowdown was no justification for the alliance.

“The job of the regulators is to assess the long-term impact of the alliance on competition, not to provide special protection from the immediate challenges of the economic cycle, with which every other airline has to deal,” he said.

An exemption from the anti-competition laws would allow BA and American to run their trans-Atlantic operations as a single company, with cooperation on pricing and schedules — adding to the flight capacity and airline facilities they already share in the oneworld alliance.

Under the agreement, the three airlines will cooperate commercially on flights between the U.S., Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities.

They will expand their codeshare arrangements on flights within and beyond the EU and U.S., significantly increasing the number of destination choices that the airlines can offer customers.

“We believe our proposed cooperation is an important step towards ensuring that we can compete effectively with rival alliances and manage through the challenges of record fuel prices and growing economic concerns,” said AMR Corp. chairman and chief executive Gerard Arpey. “In addition, we believe we will be more effective competitors with greater ability to invest in our products and services.”