31 October 1998

BA 'to phase in' American link

By Roland Gribben, Business Editor

British Airways and American Airlines have slowed plans for a full-scale alliance and decided to phase in the link-up over a four- to five-year period in the face of formidable opposition.

Regulatory pressures and changes in the economic climate were yesterday cited as the reason for the slowdown. BA denied that there had been a U-turn and said that it still remained committed to the alliance.

The stock market welcomed a decision that means BA will be able to protect its powerful and highly profitable position Heathrow without surrendering capacity to more American airlines. The shares, one of the poorest performers over the last few months, rose 17 to 434p. The long-mooted alliance has faced considerable political, regulatory and competition difficulties since it was first announced more than two years ago.

Hopes of further progress were dashed earlier this month by the breakdown of talks on an "open skies" agreement between the Clinton and Blair administrations. BA has already rejected demands from Karel van Miert, the EU competition commissioner, to hand over 267 take-off and landing slots at Heathrow to American competitors anxious to gain access to the world's busiest international airport without compensation.

Now it has changed tack and wants the government to press for a gradual approach to liberalisation on the lines of the recent agreements negotiated by the US with France and Japan.

BA is pointing out that BAA, the Heathrow operator, could not accommodate the sudden arrival of more American carriers under the slot surrender programme demanded by Mr van Miert but worries about the pressure on yields and margins produced by a slackening in the growth of air travel has also influenced the British Airways decision to "go slow".

One aviation analyst said: "By scaling things back they are really making a veiled threat to the regulators and saying they can forget about competition at Heathrow without some concessions."