BA and AA Ink Alliance, Regulators (and Safety Record) Permitting

18 August 2008

LONDON: To the chagrin of Sir Richard Branson – a plutocrat posing as people's champion – BritishAirways, Europe's sixth largest carrier, has inked an alliance deal with the second-largest US airline, American Airways.

The union will also include Spanish carrier Iberia, soon to merge with BA. Regulators permitting, the trio will ply routes between the US, Mexico and Canada and the EU, Switzerland and Norway.

However, there is likely to be a significant amount of clear air turbulence before a union is consummated. The bumpy ride will include …

  • Objections by the US Department of Transport to foreign investment in US-based airlines.
  • Allegations (by Branson's Virgin Atlantic) of competition-stifling on transatlantic routes.
  • Charges against AA by the Federal Aviation Administration of major breaches of safety procedures, including intentionally flying planes known to need repairing.
  • Problems arising from drug and alcohol tests on AA flight staff.
Peter Morris, an aviation analyst at Ascend, an independent air transport information and consultancy services, dismisses the anti-competition argument as a non-starter.

"I think BA would argue that it will reduce its cost structure, which it can then pass on, to a degree, to passengers. BA is far less dominant than … Air France, KLM or Lufthansa are out of their hubs."

Virgin Atlantic's Paul Charles begged to disagree.  "What they're proposing is to create the world's biggest airline with American Airlines. We know what dominant players do - they snuff out competition, they raise prices and they become even more dominant."

BA's combative ceo Willie Walsh was predictably in dismissive mode: "This may not be good news for Richard Branson but it is good news for consumers," he told the BBC.

While Gerard Arpey, chairman/ceo of AA parent AMR Corporation, opined: "Our proposed cooperation is an important step towards ensuring that we can compete effectively with rival alliances and manage through the challenges of record fuel prices and growing economic concerns."

Data sourced from BBC Online (UK); additional content by WARC staff