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Airline Industry

Walsh: BA-AA deal may not cost Heathrow slots

John Hughes  Oct 15, 2009

U.S. regulators will probably approve a proposed British Airways Plc-American Airlines alliance without requiring the carriers to surrender flights to rivals at London’s Heathrow airport, British Air’s chief said.

“It’s a very different competitive landscape” than in 2002, when the U.S. Transportation Department demanded the sacrifice of 224 weekly take-off and landing slots at Heathrow to win alliance approval, Chief Executive Officer Willie Walsh said in an interview yesterday. “I don’t believe it’s necessary” to give up slots.

An aviation treaty then in place let only four carriers fly Heathrow-U.S. routes. That went up to nine after the start of an “Open Skies” accord last year, Walsh said.

AMR Corp.’s American, the second-largest U.S. carrier, and British Airways, Europe’s third biggest, are seeking U.S. Transportation Department approval for a joint venture with Iberia Lineas Aereas de Espana SA, Spain’s biggest carrier. The Transportation Department has until Oct. 31 to decide.

“It won’t be approved without remedies in certain markets,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with an “underperform” recommendation on British Airways. “I don’t think we’re looking at anything like what they had to agree before, but I’d be surprised if those remedies don’t include some sort of slots.”

British Airways was trading down 0.5 percent at 223.7 pence as of 12:04 p.m. in London. The stock has gained 24 percent this year. Iberia has added 14 percent and AMR is down 23 percent.

OneWorld Partners

The alliance proposal would allow the three carriers to work together on international flights in their Oneworld group without antitrust prosecution. The immunity would also extend to collaborations with Finnair Oyj, Finland’s largest airline, and Royal Jordanian Airlines, Jordan’s state-owned carrier.

British Airways and American are seeking antitrust immunity for the third time since an initial plan was announced in 1996. The last proposal was scrapped in 2002 after U.S. regulators said they wanted the surrender of more flights at Heathrow to competitors than the companies were willing to provide.

An Open Skies treaty begun in 2008 ended the monopoly on U.S.-Heathrow flights of American, British Airways, Virgin Atlantic Airways Ltd. and UAL Corp.’s United Airlines. When the treaty began, carriers including Delta Air Lines Inc. and Continental Airlines Inc. added those routes.

‘Untouchable Duopoly’

Approval would allow the carriers in the Oneworld airline alliance to compete for the first time with Star and SkyTeam, the other major carrier groupings that have antitrust immunity, Walsh said.

“If Star and SkyTeam remain the only immunized alliances across the Atlantic, we could end up with an untouchable duopoly,” Walsh said later in a speech to an aviation group.

In the interview, Walsh said the Transportation Department “set a very strong precedent” by approving antitrust immunity for the Star and SkyTeam alliances since last year.

Transport analyst Douglas McNeill at Astaire Securities in London said Walsh was talking up the verdict he’d most wish for.

“It’s a perfectly conceivable outcome, but it’s not guaranteed,” said McNeill, who has a “buy” rating on BA. “While regulators have asked for slot sacrifices in the past, there are reasons to think they may not do so this time around, but one cannot be sure.”

Walsh said that business at his carrier has “bottomed out,” without showing any indications of a rebound.

“Our own business planning was that we’d see signs of recovery in the U.S. toward the end of this calendar year and we’d see the U.K. and Europe showing signs of recovery a couple of months after that,” Walsh said. “I’m sorry to say I don’t see any signs of that at this time.”

The CEO also said that oil prices, at about $70 a barrel, may climb.

“Longer term we believe oil will probably find a price somewhere between that $70 and $90, maybe $70 and $100.”

Walsh: BA-AA deal may not cost Heathrow slots
British Airways CEO Willie Walsh / Image via


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