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Comment: Immunity jab

The renewed bid by American Airlines and British Airways to forge a transatlantic partnership, backed by antitrust immunity, looks set to establish the platform for network carrier competition between Europe and the USA for years to come

Much has changed since 2002, and even more has changed since 1996 when American Airlines and British Airways first tried to tie the knot. Global airline alliances have grown and matured, as we see in this month's special report, and the aviation market between the USA and Europe has grown by almost 20% in the past decade. More importantly, aeropolitics have changed and matured as the European Union and the USA finally took the first real steps toward Open Skies across the North Atlantic this year.

Immunity Jab 
"The idea is a business venture that will wnjoy the same kind of immunity as the core of Star and SkyTeam"

Along with this profound change, London's Heathrow Airport has undergone some transformation, although it may not be readily apparent to the harassed traveller. British Airways has a shiny new terminal, T5, and much of T5 actually works. Meanwhile the SkyTeam airlines at Heathrow have a new home in Terminal 4 and all of the Star Alliance airlines will be in a refurbished Terminal 1 by sometime early next year. And members of these two alliances have inaugurated 13 new daily services between Heathrow and US points since March 2008, despite rhetoric about how difficult it is to get slots for Heathrow operations.

Therein lies the rub. The single largest slot holder at Heathrow, BA now wants to ink a very close co-operative pact with American, its oneworld alliance partner. The idea is a business venture that would enjoy the same antitrust immunity as the core of Star (Air Canada, Lufthansa, United) and as the likely soon-to-be immunised core of SkyTeam: Air France/KLM and Delta/Northwest.

The previous efforts of American/BA to gain transatlantic immunity both failed, the second after regulators said they would demand that the two give up 224 weekly Heathrow slots, or enough for 16 daily flights. The two withdrew, licked their wounds and waited. They waited while the other alliances developed a healthy intra-alliance market for slot trading. As the alliances have grown, other European gateways have grown in importance, and while Heathrow still commands a unique place in the travellers' mind, Amsterdam Schiphol, Paris Charles de Gaulle, and even Madrid, Munich and Frankfurt have grown in importance to the transatlantic traveller.

The odd man out is Virgin Atlantic, which has raised the greatest objections. It is also the largest transatlantic carrier without membership of a global alliance. Virgin's Richard Branson was eloquent in his opposition to American/BA immunity back in 2002 - he was also outspoken, painting his planes with the motto "NO WAY AA BA". That paint has faded and another major dynamic has been added: Virgin Atlantic is no longer solely Richard Branson's. Singapore Airlines, a Star member, now owns a 49% stake in the company and Branson has spread his wings to Australia, Africa and the USA through affiliated airlines. He has even mulled buying out his Singapore partner. Virgin has about a 23% share of bookings on USA-London routes. It also has, as anyone who has flown in its premium economy class will tell you, a very full product offering.

Virgin's complaints are as much against the other alliances as they are against the American/BA oneworld effort, but BA may be prepared to sacrifice a little of its 46% slot holding at Heathrow (compared with Virgin's 3%) in return for long-term survival as a grouping. What is apparent is that if these immunity jabs are given, each alliance will have a strong transatlantic platform from which to build.

The larger issue, the issue beyond Heathrow, is that Open Skies are coming and that the commercial pressures on US and European negotiators to finish the deal by 2010 are already enormous. A stronger American/BA alliance is one of those pressures.

Moreover, the pressures will not be less if the oneworld effort falls apart, although, if the deal does fail, Heathrow will be faced with the prospect of moving further back among traveller preferences when it comes to ­European gateways.


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