Page last updated at 12:29 GMT, Sunday, 10 August 2008 13:29 UK

Virgin challenges BA's US tie-up

AA and BA tailfins
BA says talks with American Airlines are nearing a conclusion.

Sir Richard Branson has written to both US presidential hopefuls, warning against allowing a merger between British Airways and American Airlines.

Such a deal would damage transatlantic competition and mean customers lost out, the Virgin Atlantic boss claimed.

BA declined to comment, but told the BBC that it would make an announcement on the tie-up within the next few days.

A report said BA would be prepared to sacrifice "hundreds" of transatlantic flights to allow the deal to go ahead.

The carrier has tried to secure a pact with its US rival twice before - most recently in 2002 when the two airlines were asked to give up a combined total of 16 daily flights by US authorities - an offer they refused.

However, The Mail on Sunday said that BA now saw this as a price worth paying, and reported that it would make an offer to US Department of Transportation officials this week.

BA also believes that relaxations in regulations under the Open Skies agreement may make this more likely.

'Red herring'

With aviation fuel prices at record levels and spending on air travel slowing, airlines are looking for ways to cut costs.

But in his letter to Senators Barack Obama and John McCain, Sir Richard said that the solution to the problems of airlines "should not lie in an anti-competitive agreement which will inevitably lead to less competition and higher fares".

Six routes from London Heathrow - including New York JFK, Chicago and Los Angeles - would be dominated by a BA/American Airlines merger, Sir Richard said.

The argument that the competitive environment had changed with the Open Skies accord was "a complete red herring" he added, saying there had been no significant increase in competition and that ticket prices had not fallen.

Cost-cutting

BA's negotiations with American Airlines are taking place alongside talks between BA and the Spanish airline Iberia about a possible merger.

BA suffered an 88% drop in profits between April and June and said the industry faced its worst-ever period.

BA and American Airlines already work together as partners in the One World alliance which lets member airlines share flight capacity and airport facilities.

But it is understood that, if agreed, a new deal would see them working much more closely together to try to cut costs in areas such as technology, ticketing and administration.


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