DealZone

A British-Iberia merger could squeeze American

July 31, 2008

american-airlines.jpg

British Airways and Spain’s Iberia are in talks to create the world’s third-largest airline and inject some “long-overdue” consolidation in the industry, in the words of BA CEO Willie Walsh.

Where would a combined BA-Iberia leave American Airlines, which was in talks to form a transatlantic alliance with the two airlines? Would a BA-Iberia merger scuttle American’s chances at an alliance?

The argument for forming an alliance and seeking an antitrust waiver was that the “Open Skies” agreement — which frees up restrictions on carriers flying between the United States and Europe — is set to increase transatlantic competition among airlines. That’s a harder pitch to sell if a BA/Iberian merger, creating Europe’s largest airline, shrinks the number of major players in the market.

Getting regulatory approval for the alliance was uncertain to begin with. An immunized alliance between American, the largest U.S. airline, BA, Europe’s third-largest carrier, and Iberia, Spain’s largest airline and the biggest operator of flights to Latin American player, would create the most extensive network between Europe and the Americas.

To make things even more complicated, British Airways has 40 percent of takeoff and landing slots at Heathrow, by far the largest share of any airline. In 2006, BA and American held over half the capacity between Southeast England and the United States between them.

In the past, BA and American have tried to form an alliance and failed. U.S. antitrust authorities  asked the carriers to give up some slots at Heathrow if they wanted approval, but the airlines did not want to part with the slots. Times have certainly changed since — fuel prices have skyrocketed and the economy has weakened — but the same requirements for Heathrow would likely apply again.

What’s American to do? U.S. airlines have lost more than $35 billion in the past few years. Delta Air Lines and Northwest Airlines have agreed to merge, creating a formidable competitor as the world’s largest airline. And United and Continental have also agreed to a plan of global co-operation .

If BA and Iberian are off the table, an alliance with another carrier could be American’s best shot at surviving this downturn. US Airway, we’re looking at you.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/