BA agrees deal with American Airlines

(Getty)

British Airways and would-be Spanish partner Iberia today paved the way for a transatlantic joint venture with giant US carrier American Airlines.

The three airlines said they had signed a joint business agreement on flights between North America and Europe in an expansion of their already existing tie-ups.

The airlines were today asking America and European authorities for immunity from competition regulations so the deal can go ahead.

BA said the three-way relationship would "benefit consumers by providing easy, seamless and convenient travel to more global destinations with better connections, improved flight schedules and enhanced frequent-flyer benefits"

It added: "It will improve customer choice by enabling the oneworld global alliance, of which American, BA and Iberia are key members, to compete more effectively around the world with other global alliances."

But Sir Richard Branson, head of BA's arch rivals Virgin Atlantic Airways has already said any link-up would be "bad for passengers, bad for competition and bad for the UK and US aviation industry".

Under the joint business agreement, the three airlines will cooperate commercially on flights between the US, Mexico and Canada, and the EU, Switzerland and Norway while continuing to operate as separate legal entities.

They will expand their joint-marketing codeshare arrangements on flights within and beyond the EU and US, significantly increasing the number of destination choices that the airlines can offer customers.

BA said today's announcement was a significant step towards strengthening customer choice and would enable oneworld to compete effectively with rival global air alliances that have already received transatlantic anti-trust (competition rules) immunity.

BA added that customers would be able to travel more easily on the three airlines' combined route network which will serve 443 destinations in 106 countries with more than 6,200 daily departures and more frequent and convenient schedule options than any of the three carriers could offer individually.

"By working together to provide links for connecting passengers, the airlines can expand customer choice by supporting routes that would not be economically viable for the individual airlines," BA said.

BA also said customers will also benefit from expanded opportunities to earn and redeem frequent flyer miles and elite tier benefits on flights worldwide and continued reciprocal airport lounge access.

The joint business agreement will enable the airlines to reduce costs and attract new customers, helping to mitigate pressure on fares from record fuel costs. This means that the airlines will have greater ability to invest in their products, services and fleets. Employees and shareholders will also benefit from the agreement.

Gerard Arpey, chairman and chief executive of AMR Corp, the parent company of American Airlines, said: "We believe 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.

"In addition, we believe we will be more effective competitors with greater ability to invest in our products and services. As a result, this business agreement will create positive outcomes for our customers, shareholders, employees and the communities we serve."

BA chief executive Willie Walsh said: "This strategic relationship strengthens competition by providing consumers with easier journeys to more destinations with better aligned schedules and frequencies.

"We are applying for EU US anti-trust immunity in a changed regulatory world where London Heathrow is open to any US or EU airline that wants to fly to the United States and where rival alliances have immunity."

Fernando Conte, Iberia chairman and chief executive, said: "Customers will benefit the most from this relationship as they will have better connections to more destinations around the world.

"It will increase competition as the three global airline alliances will play under the same rules. We are taking a very important step towards consolidation which is necessary in today's aviation industry."

BA has already announced it intends a full merger with Iberia but has failed in the past to form a transatlantic alliance because of anti-competition concerns.

Virgin Atlantic argues that this kind of three-way link would give BA an even more dominant position at Heathrow.

Virgin said BA already had 42 per cent of the take-off and landing slots at Heathrow, with American Airlines having 3 per cent and Iberia 2 per cent.

BA argues that the US/EU so-called open skies deal that, since March this year, has lifted many of the old transatlantic flight restrictions, means that a link-up with American Airlines is now more acceptable. But Virgin disagrees.

Asked if this was a way for BA to introduce cuts, Mr Walsh replied: "We are not talking about cutting back."

He added: "This deal is good news for consumers who will now have more choice. I don't see it leading to higher prices and I think it will increase competition on transatlantic routes."

Mr Walsh said that Sir Richard's criticism was like listening to "a broken record" and that it was quite wrong for Virgin to claim that the new three-airline deal was not in the interest of consumers.

The BA chief also said that the aviation climate had changed considerably since a BA-American Airlines link-up was blocked in early 2002 as the open skies deal finally introduced in March this year had led to far greater competition at Heathrow.

Gaining anti-trust immunity (ATI) would put BA and its partners in the oneworld alliance on a par with the other world airline alliances which already had ATI, he added.

BA and American Airlines (AA) had also attempted a link-up in the late 1990s.

Today, Sir Richard said: "Make no mistake - if this monster monopoly is approved it will be third time unlucky for consumers. It will still be bad for passengers, bad for competition, and bad for the UK and US aviation industry

"BA argues that the aviation landscape has changed since their last failed application. I disagree. Nothing has changed. Open skies has not delivered the greater competition that was promised because Heathrow is full.

"BA/AA and Iberia would still be unacceptably dominant, with nearly half of all of the slots at Heathrow, leaving competitors powerless to take them on."

Sir Richard went on: "The current economic slowdown is also no justification for agreeing to this alliance. The job of the regulators is to assess the long-term impact of the alliance on competition, not to provide special protection from the immediate challenges of the economic cycle, with which every other airline has to deal.

"We are not against consolidation but this alliance is on a scale never seen before. BA/AA with Iberia won't create fair play - so we say no way BA/AA."