FLUG REVUE September 1996: BA/American alliance

BA AND AMERICAN: ALLIANCE UNDER PRESSURE

by Heiko Reuter

When British Airways and American Airlines realize their transatlantic connection as planned in April of next year, their competitors will be challenged by a gigantic airline bloc. BA is renowned to be one of the world's most profitable carriers, with 25,4 million passengers in 1995 the number one in international air traffic. The US mega-carrier American Airlines, economically topfit as well, accounted for a total of 80 million passengers on board its planes in 1995, and, with 16,4 million passengers, is holding position number three of the major airlines in international air traffic.

Combining the potential of the two airlines gives insight into the market power of this new transatlantic alliance. BA and American together would be holding 24 percent of all flights from Europe to the USA. As a comparison: The Lufthansa-United alliance only accounts for 14 percent. BA and American flight numbers carry 60 percent of all connections between Great Britain and the USA. Even higher is the percentage for connections between New York and London (70 percent) and on the London-Chicago route (90 percent).

Challenged by this power, the competition is mobilizing its forces on all fronts. The British Office of Fair Trading, the European Commission, and the US Ministry of Justice are evaluating the new alliance, focusing on alleged competition impediments, monopoly accusations, and slots at the London Heathrow airport. Six US carriers, among them Delta Air Lines, United, Continental, and Northwest, have asked US President Clinton to suspend negotiations with Great Britain for a bilateral air traffic agreement. They are afraid that the British government could reach an agreement which practically closes Heathrow for other US carriers, such further limiting the competition. Furthermore, this group of US airlines is trying to move the US Ministry of Transportation to deny the antitrust immunity to the new alliance, such making it nearly impossible for BA and American to coordinate their marketing activities.

Now, the battle for superiority in the transatlantic sky has entered a new phase. USAir, the airline of which British Airways had acquired a 24,6 percent share three years ago, is accusing its own partner of violating the antitrust law. Furthermore, that British Airways had not consulted USAir before the American deal. USAir now plans to force the British partner sell its shares per decree of a court. Also, three BA representatives in the USAir management are to leave the board.

Interview with Peter Spencer

How is British Airways opposing these accusations? FLUG REVUE talked to Peter Spencer, Director of Americas of British Airways, who had participated in the deal with American.

FR: Your competitors say that your alliance with American Airlines is harmful for the competition and leads to a quasi monopoly.
Spencer: Many numbers and statistics have been going around in the last days and weeks. It is true that British Airways and American Airlines together total a 24 percent market share of international air traffic between Europe and the USA. This may be a significant share, but certainly does not put us in a position of dominating the market. Furthermore, the reason for so many passengers choosing British Airways is not based on some imaginary monopoly but in the attractivity of our product.

FR: Still, Virgin head Richard Branson, a traditional opponent to British Airways, is already talking of a "legalized cartel".
Spencer: Total nonsense. Our cooperation with American is not hindering the competition but is creating new competition. The customer has more choices. Also, the prices will become more competitive.

FR: Your present US partner is already suing British Airways. Is this the beginning to the end of your alliance with USAir?
Spencer: We intend to continue our cooperation with USAir. The lawsuit against BA has no impact on the operational cooperation between the two airlines.

FR: A USAir speaker says that BA did not, or at least not sufficiently, inform USAir's management about details concerning the American deal.
Spencer: I can not comment on that.

From page 36 of FLUG REVUE 9/96

Last updated August 18, 1996