There can be little doubt that one of the recurring themes running through the world airline industry in 1997 will be the continued US-leddrive towards world open skies. In its wake, expect further manoeuvring among carriers to strengthen transpacific and transatlantic alliances.

Arguably, the most significant (and certainly the most highly visible) event should be the signing of a US-UK open-skies treaty, paving the way to completion of the American Airlines-British Airways alliance. The bilateral talks have admittedly been running a little less smoothly than BA's initial optimism may have suggested, and the UK carrier concedes that the March 1997 target date is a now unlikely to be met.

There are also clearly still some potentially delicate negotiations to come. Not least is the tricky question of how far the UK will have to go to satisfy US demands for guaranteed access to London Heathrow airport and, possibly, beyond-rights. The progress of the alliance past competition scrutiny in Europe and the USA is also likely to be politically fraught.

Yet despite the predictable trading of claims and counterclaims, all of the parties have more to gain than lose from US-UK open skies. For the US Department of Transport (DoT), the deal will effectively mark a victory in its long-running campaign to open up Europe through a series of national deals. Much of northern Europe, including Germany, is already signed up, while France is tentatively talking about following suit: expect others in Italy, Spain and beyond to open serious dialogues. The European Commission is talking about the framework for a wider transatlantic deal, although do not expect anything substantive in 1997.

While the major US carriers are keen to wring as many concessions as possible out of the bilateral, any lingering doubts should be overcome by the lure of access to Heathrow.

For BA, and therefore for UK aviation policy as a whole, the deal has become critical. If an alliance with American Airlines falls through, there are now scant few possibilities to get back into another transatlantic partnership, especially now its link with USAir is ending. To have no partner is unthinkable, if BA is to mount an effective challenge to the Lufthansa/SAS/ United Airlines alliance, as well as to see off challenges from KLM/ Northwest Airlines and Swissair/Sabena/Delta Air Lines. The price of giving up a few slots at Heathrow would be worth paying for BA.

The US airline industry could itself yet indulge in a renewed bout of consolidation. Rumours of negotiations between Continental and Delta at the end of 1996 again raised a flurry of speculation - both have ambitions to enter Heathrow and both have also signed codeshares with Air France.

It could only take a single merger among the US majors to send the others chasing their own deals. USAir, now freed from its pact with BA, is again in a position to talk as it did a year ago with American and United.


European deregulation

The year will also see the re-emergence of Air France from its three years of enforced restructuring, which has run alongside massive state-aid injection. The airline recently proclaimed that it is set to launch the new Groupe Air France structure on 1 April, which finally brings the parent airline and its Air France Europe regional operations (including Air Inter) under a single holding company.

The date for the launch is carefully timed to coincide with the completion of Europe's single air market, removing the last obstacles to entering new domestic markets across the region by European carriers. Air France has reason to worry. BA has already built up an impressive presence in France through its TAT acquisition (also to be completed in April), as well as its stake in Air Liberté and, possibly, AOM.

Others, too, will be sharpening up their networks and partnerships. Among the bigger moves could be the transfer by SAS of its 49%stake in British Midland to Lufthansa. That would give the alliance a strong presence at Heathrow and an answer toBA's bridgehead in Germany through Deutsche BA.

The state-aid carriers of southern Europe will also emerge from restructuring during the year, with more settled balance sheets and looking to secure niches in the new order. Iberia has made little secret of its willingness to consider a place in the BA/American alliance if invited.



The theme of alliances and open skies is also due to run through Asia in 1997, as Japan and the USA battle over a fresh passenger bilateral.

The US DoT has already sealed deals with Hong Kong, the Philippines and Thailand, among others, but the real prize is Japan. There seems little prospect of Japan agreeing to full open skies, given its insistence on first achieving a more balanced deal for its carriers in their unequal fight against United and Northwest.

Pressure has been building, however, from carriers on both sides of the Pacific for a new deal to replace the ageing 1950s bilateral. A compromise could be to agree an interim deal, but promise to start working towards open skies.

Whatever the outcome, alliances involving the big three Japanese carriers are in prospect. Japan Airlines is already linked to American and has talked to both BA and its partner Qantas, laying the groundwork for an impressive global tie-up. Northwest has been flirting with Japan Air Systems, while All Nippon Airways has its links to Delta and historically to the US carrier's European partners such as Austrian and Sabena.

China's aviation industry is also likely to re-emerge into the public eye. Aircraft orders are building up again and at least two local carriers are due for stock-market listings. The hand-over of Hong Kong in mid-year will reveal how successful Cathay Pacific has been in its moves to strengthen ties with China.

Source: Flight International