Air travel BA-AA alliance attracts flak from Branson

Virgin chief labels pact 'a monster monopoly' New partners predict drop in transatlantic fares
  • The Guardian,
British Airways
Photograph: AFP/Adrian Dennis

British Airways unveiled an alliance with American Airlines and Spain's Iberia yesterday that will allow the three carriers to agree fares and schedules - prompting warnings from rival Virgin Atlantic that passengers will face higher ticket prices.

BA must convince officials in Washington and Brussels that the agreement to cooperate on flights between North America, Mexico and Europe will not lead to fare rises and distort the crucial London-New York market. Virgin Atlantic laid down a marker as the deal's most vehement opponent yesterday, when the airline's founder, Sir Richard Branson, warned yesterday that the alliance would be a "monster monopoly".

BA's chief executive, Willie Walsh, said the partnership would give British customers more reliable and cheaper journeys to American destinations. "There is no reason why fares should go up as a result of this. For the consumer, it means they will have access to a much bigger network. We will coordinate our schedules to make it easier to connect between airlines and you will have greater access to cheaper fares," he said.

Passengers on transatlantic routes would be able to choose between BA and AA fares when booking flights, Walsh said, allowing them to select the cheapest fare for both legs of a return journey. "There will be nothing to stop the customer from taking a fare with AA outbound and taking a fare with BA on the inbound leg."

It is the third attempt by BA to forge an alliance with the second-largest airline in the US, six years after the previous attempt foundered when the European commission demanded the sale of 32 take-off and landing slots at Heathrow as a concession.

Virgin Atlantic, BA's fiercest rival in the UK-US market, warned that the deal would give BA and AA control over nearly two-thirds of one of the most lucrative markets in aviation: Heathrow to New York's JFK airport. "Make no mistake, if this monster monopoly is approved it will be third time unlucky for consumers. It will still be bad for passengers, bad for competition, and bad for the UK and US aviation industry," said Branson.

Walsh hit back, claiming that the airline industry was now "completely different" because the recent liberalisation of the transatlantic airline market had created a competitive market in Heathrow-US flights. The Open Skies treaty in March replaced an agreement that limited the Heathrow-JFK route to four airlines. "This is an open market and that is the big difference between now and 2001. Anybody can come in and compete," said Walsh, who added that nine airlines now operated between Heathrow and the US.

BA is the biggest carrier at Heathrow, owning 42% of the take-off and landing slots, but Walsh ruled out selling some to appease regulators. BA will argue that two global airline alliances, Skyteam and Star Alliance, already have anti-trust immunity for transatlantic flights, allowing Air France-KLM and Germany's Lufthansa to cooperate over capacity, scheduling, networks and fares with their respective partners, United Airlines and Delta.

"We have seen Open Skies and we have seen the effects," Walsh said. "The other two alliances have anti-trust immunity. The issue of competition between the alliances is much more relevant than it was in 2001 and we have a changed industry environment. Things have changed sufficiently for us to apply with confidence this time."

Walsh added that there had been no preliminary discussions with AA over a full-blown merger, which is currently prohibited under ownership guidelines. BA is already in merger discussions with Iberia to form a €5bn (£3.96bn) airline but the deal could take up to a year to complete.

The flag carriers Finnair and Royal Jordanian are also applying for anti-trust immunity as part of the alliance, but the inquiry by the US department of transportation and the EU competition directorate is expected to focus on the transatlantic market.

Discussing commercially sensitive information such as fares and scheduling between airlines is illegal unless it is given prior blessing by competition authorities. Without anti-trust clearance, carriers can face price-fixing charges, as BA found when it was fined more than £270m by US and UK regulators last year for colluding with Virgin Atlantic over fuel surcharges.

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