American Teams Up With British Airways
American Airlines and British Airways, the top carriers across the Atlantic, on Tuesday announced plans for an alliance that would give them a dominant market share on many lucrative routes.
The airlines would remain independent but would coordinate ticket sales and connections to each other’s flights.
American and British Airways said they will “offer the widest choice of routings and departure times,” with smooth connections on their services linking Europe, Africa and the Middle East with points in North America, the Caribbean and South America.
British Airways Chief Executive Bob Ayling touted the deal as “very good news for consumers, for our employees, for our shareholders, for the communities we serve.”
But the deal immediately raised complaints that it could lead to higher prices and fewer choices for travelers. Rival Virgin Atlantic Airways said the two giant airlines could abuse their huge market share.
“Together, they will dominate the market with over 60% of the U.K.-U.S. traffic, and up to 100% in the worst cases,” Virgin Chairman Richard Branson said. “Given the history of these two airlines and their anti-competitive behavior, it would be hard to believe any rational government, in the interest of consumers, would allow this to go forward.”
Virgin said this “transatlantic cartel” would be able to push fares higher because travelers would often have few, if any, choices about how to fly.
Virgin spokesman Will Whitehorn predicted fares would rise about 25% over the next three years, which is what he said happened after Sir Freddie Laker’s budget airline, Skytrain, went bust after British Airways and others started a fare war in the early 1980s. Laker eventually won millions in court payments from the other airlines.
Branson planned to meet later Tuesday with British Transport Secretary Sir George Young to voice his opposition.
Virgin said it will object at every level before British and U.S. aviation regulators as well as the U.S. Justice Department, which would have to grant antitrust immunity.
American and British Airways had been in talks for some time as many other carriers sought similar partnerships. The two said they had no plans to exchange ownership stakes with each other. They also said they hope to keep USAir, the U.S. partner of British Airways, involved in a way that “will strengthen USAir’s position.”
British Airways has a 24.6% voting stake in USAir; the joint American-British Airways statement did not elaborate on the USAir role.
Virgin said American and British Airways would control 61.29% of the traffic between Britain and the United States, with huge shares in key markets. According to Virgin, their market share would include:
* 60% of the traffic between London and Los Angeles;
* 71% of the traffic between London and New York’s John F. Kennedy International Airport;
* 76.5% of the traffic between London and Miami;
* 60% of the traffic between London and Boston;
* 100% of the traffic between London and Dallas.
“They’re the only game in town in Dallas,” said an executive at another international carrier. The executive, speaking on condition of anonymity, said the deal will lead to “an almighty regulatory battle” because of the monopoly it would give American and British Airways in major markets.
Virgin has tangled for years with British Airways over charges that the larger carrier engaged in a “dirty tricks” campaign to harm Virgin’s business.
British Airways settled a libel suit several years ago and issued a public apology to Virgin. Shortly thereafter, the British Airways chairman, Lord King, retired early. Virgin is pressing ahead with legal action against British Airways in New York.
American also has had problems with allegations of anti-competitive behavior.
A decade ago, the carrier and its president, Robert L. Crandall, settled a civil suit filed by the Justice Department’s antitrust division.
Crandall, who is now American’s chairman, was accused of telling Howard Putnam, president of the now-defunct carrier Braniff International, in a telephone conversation that if Braniff would raise fares by 20%, American would do the same.
American and Crandall settled without admitting any violation of the Sherman Antitrust Act, but Crandall had to agree to restrict any future conversations with other carriers about setting fares.
