AA and BA Drop Alliance as Regulatory Conditions Prove Penal

28 January 2002

Longstanding attempts by British Airways and American Airlines to cooperate on prices and schedules on their transatlantic routes have come to nothing after the duo decided regulatory demands were too great.

The US Department of Transportation ruled Friday that the deal would be given antitrust immunity on condition that the two airlines relinquish to rivals take-off and landing slots equivalent to 16 flights a day.

BA and AA are said to have expected the regulator to demand eleven or twelve flights daily and promptly opted to drop the proposed alliance – a decision seen in some quarters as a future negotiating ploy. Right now, however, it leaves the duo at a disadvantage to many of their European–American rivals, whose alliances already have received antitrust immunity.

The two carriers currently control 65% of the lucrative routes between New York and London Heathrow, with only two other airlines (Virgin Atlantic and United Airlines) allowed to operate competing services between Heathrow and the US.

Officials from the US and UK had been due to resume talks this week on creating an ‘open skies’ treaty, whereby any carrier from the two nations could operate transatlantic routes without requiring regulatory approval for prices or schedules.

American regulators had demanded such a deal before it could approve antitrust immunity, putting pressure on their British counterparts to open up the market.

However, the collapse of the BA-AA deal prompted British officials to delay ‘open skies’ talks indefinitely. The two countries may not get another chance to resurrect the matter on a one to one basis, as the European Court of Justice is due Thursday to rule whether such bilateral treaties violate the European Union’s single market.

The Court is expected to find broadly in favor of a single treaty between the EU as a whole and America.

News source: Wall Street Journal