ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, June 12, 1996 TAG: 9606120029
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: LONDON
SOURCE: Associated Press
AMERICAN AIRLINES AND BRITISH AIRWAYS are making a deal to link the carriers globally. The move has some rivals crying foul.
American Airlines and British Airways Plc, the dominant carriers across the Atlantic, said Tuesday they plan to form an alliance linking their trans-Atlantic routes and feeding passengers onto each others' global networks.
The alliance, which involves linking the carriers' frequent-flyer programs and pooling their transatlantic profits, would eclipse those set up by American's two major U.S. rivals, Delta Air Lines Inc. and UAL Corp.'s United Airlines.
The agreement faces significant regulatory hurdles. It would require the signing of an ``open skies'' agreement between Britain and the United States, a step that's been stymied for 20 years because of U.S. carriers' limited access to London's Heathrow Airport.
BA and American together already control 28 percent of the market between Europe and the United States, and two-thirds of the market between Britain and the U.S.
``You're talking about monopoly and near-monopoly positions on some of these routes,'' said Keith McMullan, the director of Avmark International, an aviation consulting firm in London. ``There are going to be a lot of headaches and a lot of culture clashes before this is over.''
Donald Carty, American's president, said he expected the arrangement to win approval within months.
Precedents suggest the wait could be far longer, though, and the combined power of the two carriers could make this link more difficult to push through than any in the past. It took Delta and Swissair one year, for example, to win regulatory approval for their own alliance -- and that one was far less ambitious.
Some rivals cried foul. Richard Branson, the chairman of Virgin Atlantic Airways, said in a letter published in today'sTuesday's Financial Times that the agreement would be a ``legalized cartel'' that dominates capacity and prices across the Atlantic.
If allowed to go through, the arrangement would create the most powerful airline combination yet seen. Similar alliances include KLM Royal Dutch Air Lines and Northwest Airlines; UAL Corp.'s United Airlines and Lufthansa, and Delta Air Lines and Swissair.
It will include coordination of all routes for both passengers and cargo between Europe and the U.S. and code-sharing agreements across much of the two airlines' global networks, under which the airlines can sell one another's flights as their own in computer reservations systems.
American, which has been slower than its rivals to expand overseas, would gain access to British Airway's network of 80 cities in Europe through Heathrow, the world's biggest international hub.
BA would gain broader coverage of the United States, now limited to 20 U.S. cities of its own and 78 cities, mainly on the Eastern seaboard, served by its partner, USAir Group Inc.
American serves 152 U.S. cities.
The biggest issue in the Roanoke Valley regarding the alliance will be the impact on USAir, said Mel Ludovici, president of Martin Travel in Roanoke.
"If USAir is not going to grow with British Airways and American is, that's going to make USAir search for someone to partner with," he said.
Ludovici expressed uncertainty regarding what effect an alliance between USAir and another carrier such as United Airlines might have on Roanoke Regional Airport.
The agreement won't include any equity swaps and both carriers will remain ``independent'' entities.
British Airways chief executive Robert Ayling said the carriers plan to work with USAir, in which BA owns 24.6 percent, to ``improve'' the alliance, such as aligning routes. He said the agreement shouldn't affect BA's relationship with the carrier otherwise.
Asked by analysts on a conference call whether the arrangement could possibly include another European carrier, Ayling declined to discuss potential future arrangements.
``For the time being, the announcement is limited exclusively to American and British Airways,'' Ayling said. Some analysts said KLM could figure in the alliance at some point.
Investors greeted the announcement by bidding up the airlines' shares. British Airways shares rose 9 pence to 562p in London trading. Shares in AMR Corp., American's parent company, traded recently up 5/8, at 94 5/8.
Analysts were cautious, though, warning that winning clearance will be a long and difficult battle.
``They seem convinced that it will go through, but maybe that's just a public negotiating position,'' said Nick Cunningham, an analyst with Barclays de Zoete Wedd in London. ``It's part of selling the deal.''
The regulatory fight will center on the request by American and British Air for immunity from U.S. antitrust laws in the operation of the joint ticketing, marketing and fare-setting alliance.
And a new air treaty between the United States and the United Kingdom must first be negotiated.
The U.S. Department of Transportation has said repeatedly in recent years that any broad commercial agreements such as that proposed by American and British Airways would be conditional upon a liberalizing of air transport between the two countries.
That hasn't happened, partly as talks have become hung up on the issue of access rights, or slots, into Heathrow International Airport. A United Kingdom Department of Transport official, who declined to be named, said Tuesday that the government has ``no control'' over takeoff and landing slots at airports.
The official added that this could be decided only by individual airports and by the European Union's slot allocation committee, which has been studying revision of the rules since 1993.
Will Whitehorn, a spokesman for Virgin Atlantic, dismissed the agreement as a ``charade deal'' that glossed over the question of access to Heathrow.
``I can assure our American friends that open skies is one thing, and getting slots at an airport is a completely different thing,'' Whitehorn said.
Delta Air Lines Inc., the No.3 U.S. carrier, said it would oppose the alliance unless Britain and the U.S. conclude an open-skies agreement that gives U.S. carriers long-sought access to London's Heathrow Airport and sufficient ``beyond'' rights to markets such as Asia and Africa.
Delta recently won immunity from antitrust law to pursue its alliance with Swissair and two other European carriers,
``We're very concerned,'' said Dean Breest, a spokesman for Delta. He said it would be difficult to speak more specifically until the U.S. and U.K. governments begin discussing details of the open skies treaty.
The announcement comes one month after American's biggest U.S. rivals, United and Delta, won antitrust immunity for their own European alliances. BA and American said they expect those agreements to serve as a precedent for their own alliance.
Analysts said they believe that for American and BA to win regulatory approvals, because they two control two-thirds of traffic between Britain and the United States, they would have to cede some routes to rivals.
Staff writer Greg Edwards contributed to this story.
LENGTH: Long : 135 lines ILLUSTRATION: PHOTO: AP 1. Robert Crandall, chairman of American Airlines,by CNBdiscusses the possible alliance between American and British
Airways. 2. chart. color. KEYWORDS: MGR