9 July 1998

BA alliance 'will send fares soaring'

By Michael Harrison in London and Katherine Butler in Brussels

Rival airlines and consumer groups warned yesterday that transatlantic air fares could rise by as much as 50 per cent after British Airways and American Airlines were given the conditional go-ahead to forge the world's biggest airline alliance.

Although regulators in London and Brussels laid down stiff conditions, insisting that in exchange for approval, the partners surrender the equivalent of half their transatlantic slots at Heathrow and Gatwick, the Consumers Association and other airlines attacked the deal.

Richard Branson's Virgin Atlantic described the conditions as "woefully inadequate" and said air fares could rise by 10-50 per cent because of the alliance's domination of key transatlantic routes. The Consumers Association warned of a similar hike in fares, while Delta Air Lines also criticised the conditions for not going far enough and short changing consumers.

But Bob Ayling, BA's chief executive, described the conditions as "too harsh", saying they would unfairly penalise the airline and British interests.

Karel Van Miert, the European Competition Commissioner, ruled that the alliance partners must give up a maximum of 267 take-off and landing slots in London in return for approval. They were also ordered to reduce their services on three key transatlantic routes - between London and Dallas and Chicago - by more than half for a period of six months while competition enters the market.

The President of the Board of Trade, Margaret Beckett, endorsed the EC's package of measures and said she hoped to give the alliance final approval in the autumn, once US and UK authorities had signed a new "open skies" agreement between the two countries.

Mr Ayling said BA would campaign to have them amended during a 30-day consultation period announced by Mrs Beckett but he stopped short of saying they were a "deal breaker".

British Midland, which has announced plans to serve up to ten US destinations, including Miami and Chicago, welcomed the conditions laid down by Mr Van Miert. But the rival US carrier Delta Air Lines criticised them for not going far enough.

The alliance will dominate transatlantic air services, accounting for 40 per cent of the market and 100 per cent of passengers on some routes, such as Gatwick-Dallas. The 267 slots they have been told to surrender - 220 at Heathrow and the remainder at Gatwick - represents a compromise between the original demands of the UK and EU authorities.

The Office of Fair Trading initially recommended the surrender of 168 slots (although this was increased to 210 slots in unpublished confidential guidance given by the OFT to ministers last September). Mr Van Miert, meanwhile, initially called for the two airlines to give up a total of 353 slots.

The alliance has still to be approved by the US Department of Transportation. Even supposing that is forthcoming this September, BA and American Airlines would not be able to launch the alliance until next summer, possibly autumn - more than three years after it was first unveiled.

Mr Ayling said BA objected to being told to give up slots for free. "We have these rights and if we are asked to give them up, we should be compensated. It would be inconsistent with previous decisions by the EC to force us to give up valuable rights without that."

In Brussels, Mr Van Miert said: "This is not the end of the procedure, but it is a milestone. The Commission has set the framework now."

He made it clear also that the number of slots to be surrendered was not negotiable, that auctioning slots is illegal, and that he expects BA and AA to start the handover as soon as rivals request it.