Understanding the politics of the BA-AA alliance
Published: 20 Aug 2008
Fort Worth's Mayor, Mike Moncrief, weighed in last week to support British Airways' proposed operational merger with American Airlines.
"Our world is shrinking, and that has a lot to do with the airline industry," he says. Neighbouring Dallas Mayor, Tom Leppert, also thinks it is a good idea: "At a time, when airlines are severely challenged by fuel costs and capacity cuts, this gives them the opportunity to work together and share revenues and costs on transatlantic routes."
American Airlines has its main activity out of the sprawling Dallas-Fort Worth Airport, nearby its headquarters, and the added market strength of the carrier should help expand the network strength of both the airport and American.
DFW Airport is only one of many interested parties with an axe to grind in the approval process now before the US Department of Transportation. With a Presidential election a few weeks away and a highly charged political atmosphere, lobbyists – including Sir Richard Branson - are working feverishly either to make sure that each of the candidates is well informed of their positions.
Although on a scale of economic impact issues that the US has in front of it, the merger should barely rate a mention, there is something about flag carriers – and each respectively carries its national name – that give them vastly disproportionate importance. And this one has some real history in the scheme of airline relations between the two major North Atlantic neighbours.
Thirty years ago, all air service between the US and UK came within a whisker of being terminated, as the two sides could not agree on a new air services agreement. US airlines circled London's Heathrow Airport for more than half an hour early on that morning in the summer of 1977, as negotiators frantically struggled to reach a compromise. One of the main issues: US airline access to Heathrow.
And the US government has continued to fight at every opportunity to increase access for its airlines at Europe's key international hub.
Those same authorities are well aware that airline consolidation is essential to a rational and independent airline system in the future. But the application offers one last opportunity to capture some of the valuable slots that British Airways holds. Almost half of the airport's slots are held and used by BA or its oneworld partners. Once this application is approved, a great chance to leverage access to the airport will be lost.
British Airways argues that in fact the issue of market dominance no longer revolves around one European airport, but that the real criterion to be looking at is the Europe-US market share of each of the alliances. And, by implication, their respective hubs. oneworld airlines fall far behind the other two on US routes, if all major European gateways are accounted.
This has a degree of logic, now that open skies is evolving between the two super powers. If that is the case, a lot will swing on the relationship that develops around Branson's Virgin, Lufthansa (which also wants to establish at Heathrow) and bmi, ready to trade its own slots at the airport, now that they have been commercially valued.
They too have a lot to gain from an AA-BA approval which extracts a handy number of slots from British Airways.
This is all most unfortunate for BA. Failure to consummate this deal will leave it and oneworld in a greatly weakened position relative to their main Star and SkyTeam competition, each of which is now entrenched with its own US counterparts. And while CEO, Willie Walsh, boldly rejects the prospect of ceding even one piece of its geography at Heathrow, he knows that the endgame is going to come down to just how many slots have to go.
That said, unlike the two previous rejections of similar applications, approval must now surely be a foregone conclusion. Anything less will terminate the long term aspirations of a third powerful global alliance. That would have much more serious implications for global competition than Heathrow's real estate. Just ask the mayors of Dallas and Fort Worth.
(Article from Centre for Asia Pacific Aviation)
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