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Wednesday, July 8, 1998 Published at 18:16 GMT 19:16 UK

Business: The Company File

Richard Quest: reading the BA-AA deal

[ image: Richard Quest]
Richard Quest
The BBC's North American business correspondent, Richard Quest, analyses the European Commission's conditional approval of the alliance of British Airways and American Airlines.

There was never much doubt that the deal would be done - the question was always what would be the price.

At the upper end were predictions that the European Commission would ask both airlines to give up 300 or more landing slots - but then both sides would have walked away.

At the lower end of 200, competition would have been non-existent.

In choosing 267 the EU hopes, basically, to keep the bully in the box until the nascent competition has a chance to get moving. But will it work?

BA/AA is a formidable alliance. They control 65-70% of the New York to London traffic and virtually all on key routes like London to Dallas-Fort Worth, where they are the principal operators. Who would realistically want to compete with them at Dallas?

With no on-ward traffic and few independent connections it makes little sense for competitors - whether from the US or Britain - to enter that market.

That is why the devil is in the detail of this agreement. Which slots have to be surrendered and when? Who will be allowed to take them over and at what time? And how quickly will BA/AA be able to accumulate fresh slots?

Perhaps that is the most important question. A few facts show why. American Airlines bought its 120 slots in 1991 from TWA for $400m. In just seven years they have managed to parlay them into 210 slots (and London Heathrow is supposed to be slot exhausted!).

The fact is that new slots will come on the market elsewhere which they should not be allowed to pick up. Otherwise they will be giving with one and taking with another.

A quick look at the other agreements:

Lufthansa and United - they have to give up slots in Frankfurt and Copenhagen. Both airlines are cross. Their alliance has been running for two years and now Mr. Van Miert threatens to spoil the party.

The same is true for Delta and Swissair. Poor Continental and AirFrance - a much more modest affair - is also likely to get caught in the downdraft, except that not too many people like travelling to Paris when they go to London.

BA/AA may have passed the van Miert test, and the British Department of Trade has accepted the numbers (and conveniently forgotten that its own inquiry recommended just 150 slots to go), but now eyes turn to the American Justice Department, Department of Transport and ultimately the two governments. The whole thing is conditional on an Open Skies agreement, which would open up both countries' markets to each others airlines.

And that's a whole new can of worms. Don't pack your bags just yet.

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