The announcement of the American Airlines/British Airways-led strategic alliance brings into sharp focus the long term destiny for the world's airlines. The move, which was announced on 21 September, creates a second major power to rival the Star Alliance, which until now has existed in splendid isolation.

Working on the basis that two's a trend, then the arrival of the "World Alliance" is the final public confirmation of what has been clear in the industry for some time. That the world is being carved up between at least two multinational airline groups.

But if you think this development will end the globalisation trail, think again. The alliances are set to spread their tentacles into every sector of airline life. Bringing second tier/regional airlines into the fold is already on the agenda for the six airline-strong Star Alliance. Before long, these groups will wield huge power to influence every part of airline business from computer reservations to fares and the joint purchase of aircraft and services.

There appears now to be nothing to stop the airline industry from maturing into a global business after 40 years of an increasingly obsolescent national flag carrier system. In fact everything short of full-blown cross-border mergers with a single share structure and shared ownership are on the agenda, and even that may not be off limits for long for some alliance partners.

But if we are at last witnessing the breakdown of the old flag carrier system, then some urgent work needs to be done to ensure the political will is there for these alliances to survive and flourish while at the same time ensuring they do not flout the power that their size or market dominance bestows on them.

There is plenty of historical evidence that the airlines cannot be left to police themselves. That would be like putting the inmates in charge of the asylum. Nevertheless, the fiasco of the European Commission's attempts to regulate the American/British Airways bilateral alliance, an issue which has already taken nearly two years to resolve and which is still without a conclusion, does not bode well for any further attempts by government authorities to lay down ground rules under which airline alliances should operate. Nor does the lack of strategic clarity among the regulators generate optimism that any broad international operating framework is possible under which the airlines can lay there long term plans.

While the European Commission battles to grab the mantle of traffic rights negotiator from European Union nations, primarily to have the muscle to take on the US Department of Transportation, the airlines have moved on.

The issue the regulatory authorities need to start addressing now is not how to create a level playing field on transatlantic routes but how to co-ordinate their response to airlines which operate jointly across the globe. The large airlines are now breaking down the national barriers that previously prohibited meaningful co-operation. The politicians had better do the same unless they want to see the economic gains these advances can make to operators and consumers alike frittered away in bureaucratic delay and legal muddle.

Let us consider the unthinkable. Let us consider the setting up of an international regulatory body that can brush aside petty political preferences for individual carriers and govern the world's airways based on an internationally agreed framework. It can be done. The GATT (General Agreement on Tariffs and Trade) deal took years of painful negotiating but has finally given us a trade framework which the World Trade Organisation now polices.

With international airline groupings now transcending national and regional borders, the task in the airline sector is clear: to lay down a set of internationally acceptable rules and regulations governing the creation of global alliances. Global alliances need global oversight. The immediate agenda would be to standardise EU and US regulatory guidelines which could address the issues of competition, safety, labour laws, equity ownership structures and the contentious subject of bilateral agreements.

At the end of the day, the vision for a truly integrated passenger network must allow the airline industry to achieve this objective itself.

Source: Flight International