Airlines Waging Their Own War : Trends: Foreign carriers are actively seeking a larger part of the U.S. domestic market. Ultimately, that could mean higher fares and fewer frequent-flier programs.

When British Prime Minister John Major visited President Bush at Camp David last December, he had two major discussion items on his agenda, and both concerned war.

Item number one: the war in the Persian Gulf.

Item number two: the “war” over routes to London’s Heathrow Airport; increased opportunity for British Airways to fly to--and within--the United States, and the battle for foreign ownership of U.S. airlines.

If Major and other foreign interests get some or all of what they want, experts say that it would initially mean more airlines for American travelers to choose from, but in the longer run could lead to the demise of some U.S. carriers, higher fares and the curtailing or abolishing of frequent-flier programs--in effect, fewer choices and higher prices.

The first development in the transatlantic airline war was United Airlines’ announcement Oct. 23 that it would pay cash to acquire Pan Am’s London routes at Heathrow. Shortly thereafter, TWA announced that it would be selling its London routes to American for $515 million.

Although the U.S. Department of Transportation tentatively approved both transactions in January, British Airways is clearly not happy with either deal, since United and American figure to be more competitive with British Airways than either Pan Am or TWA, due to more extensive route systems within the United States.

Liam Strong, British Airways’ director of marketing and operations, said that allowing United into Heathrow without getting concessions in return from the United States would be “a very dangerous precedent.”

So, what does British Airways want?

--It wants more flights into the United States, and then on to other countries.

--It wants to be able to serve all major American cities from Heathrow (combined, U.S. and British airlines now serve about a dozen).

--It, and other international carriers, want cabotage rights--i.e, to serve some American cities from other American cities. Currently, U.S. statutory law doesn’t allow foreign airlines to operate over domestic routes.

If that law were changed, it would mean that in addition to the choice of domestic airlines on the route between, say, Los Angeles and New York, passengers could also fly British Airways or Air France. On flights between San Francisco and Chicago, passengers could also choose Lufthansa. Or between Minneapolis and Washington, KLM.

--And, finally, British Airways is asking for so-called “seventh-freedom rights”--the ability to fly to the United States from a country other than Great Britain without stopping in Great Britain.

Then there’s the issue of 1992, and the liberalization of air routes over Europe as the European Community wrestles with its own form of deregulation. Toward that end, British Airways was one of the first major foreign carriers to forge some fascinating U.S. marketing agreements, the largest of which was with United Airlines to share reservation codes, terminals and mileage programs.

U.S. Transportation Secretary Samuel Skinner recently announced a relaxing of restrictions on foreign investment in U.S. airlines, and said he is seeking congressional reconsideration of the federal law that prevents any foreign company from owning more than 24.9% of a U.S. airline.

At this writing, SAS owns 16% of bankrupt Continental. Ansett Air of Australia owns 14% of America West. Singapore and Swissair each own 5% of Delta, and Japan Airlines owns 20% of Hawaiian Air. And in 1989, when KLM Royal Dutch Airlines purchased a 56% equity interest in Wings Holdings, the parent company of Northwest, Skinner ruled that the equity could not exceed 25%.

Skinner now says that he will allow KLM a 49% equity stake in Northwest.

What with U.S. airlines posting more than a $2-billion loss in 1990, chief executives of many of these airlines couldn’t be happier with the secretary’s ruling.

“U.S. airlines need to return to profitability,” says USAir Chairman Edwin Colodny. “They must be able to attract capital. Liberalizing the restrictions on foreign investment is consistent with these objectives.”

But what impact will cabotage, seventh-freedom rights and increased foreign ownership of U.S. airlines have on consumers?

First, as more U.S. airlines merge, consolidate or simply fail, cabotage for foreign airlines could mean some additional choices for consumers on existing domestic routes.

It would seem that British Airways is well positioned to fly within the United States. Already, the British foothold in America is a strong one. United Kingdom carriers have 22 gateway cities in the United States, more than the other European countries combined.

But foreign airlines flying domestic U.S. routes could also hurt U.S. carriers. After all, if you had the choice to fly between Los Angeles and New York on TWA, Continental, Pan Am or British Airways, you just might choose British Airways (assuming fares were equal).

Seventh-freedom rights could also hurt U.S. carriers. On international flights, British Airways could fly between Paris and Los Angeles, nonstop, without the need to fly through London, perhaps making it a more attractive option for consumers than some U.S. airlines on the same route. Likewise, Air France could offer nonstop New York-to-Amsterdam flights without being required to land first in Paris. That could knock out more U.S. airline competition on certain routes.

And there’s more to the potential downside, such as:

--Increased fares. With less competition on domestic routes due to mergers and bankruptcies, foreign airlines probably won’t add seats or frequency. Instead, they’ll likely further restrict the number of discount seats offered. Essentially, the airlines will have raised fares by continuing to limit the number of discount seats.

--The gradual downgrading, or perhaps the elimination, of frequent-flier programs. Again, with less competition, look for some airlines to begin to radically increase the number of miles needed to qualify for some free flights. For example, if American is successful in acquiring TWA’s London routes at Heathrow, American has announced--in principle--the reciprocal acceptance of TWA frequent-flier miles for American flights. But neither airline has announced specifics of how the combined mileage program will work.

However, reliable sources within both airlines have already cautioned that passengers holding TWA miles shouldn’t count on TWA miles being accepted on a par with American miles. And, even if the miles are accepted equally, then look for the American program to up the ante on eligible miles required for trips.

The same should also happen if the Pan Am/United deal goes through in London. Again, both airlines have announced--contingent on the consummation of the route transfer--that Pan Am miles would be accepted by United. But on a par with United miles? That remains the unanswered question.

In the meantime, air fares between the United States and Europe continue to be more attractive than ever. At this writing, fares between Los Angeles and Zurich were going for as low as $418 round trip; between San Francisco and Rome, also $418, and between New York and London, as low as $249 round trip.

However, with airlines such as TWA and Pan Am fighting for survival, and with the traditionally high summer season not far away, you probably won’t see those kinds of fares for long. And you definitely won’t see those kinds of fares when and if the big international airlines start buying up some of the remaining U.S. carriers.