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Oneworld future hangs on upcoming airline agreements  Feb 02, 2009

MADRID - Bosses of airlines in the Oneworld alliance will celebrate its 10th birthday on Tuesday knowing the future of the 10-carrier grouping may hang on the fate of two agreements which could fly or fail within months.

Already the smallest of the three global airline alliances, analysts say Oneworld is being left behind on trans-Atlantic competition by the 18-member Star Alliance and by the Air France-Delta led Skyteam.

The biggest members from both those rival alliances have stretched their advantage over Oneworld by winning U.S. antitrust immunity on North Atlantic routes -- allowing them to coordinate prices and schedules.

That means if a third attempt by Oneworld members British Airways Plc, American Airlines and Iberia to gain similar approval is rebuffed in the next few months, smaller alliance partners could defect to rivals, analysts say.

"If BA-AA doesn't get antitrust immunity that would present a huge difficulty for Oneworld," said one London-based analyst who asked not to be named.

"It puts the alliance at a significant disadvantage. The airlines may cling to each other, but the temptation to look for other options elsewhere would be there."
Previous efforts foundered on a U.S. condition that they relinquish slots at London's Heathrow airport. But analysts say this time around the EU-U.S. Open Skies pact, a trade in airport slots and the dominant position of their bigger rivals should mean it is offered better terms.

Tuesday's meeting will also gather the CEOs of Qantas, Cathay Pacific, Japan Airlines, Finnair, Malev, Royal Jordanian , Chile's Lan and will welcome Mexicana as a new member.

Alliance airlines now account for some 70 percent of global traffic since they began in the early 1990s as a tool for carriers to offer more routes, but also to compensate for regulatory hurdles that still block many cross-border and cross-regional mergers and acquisitions.


Analysts say a second threat to the alliance would be the collapse of merger talks between BA and Iberia. That could tempt Lufthansa AG to make a bid for the Spanish carrier to fill a Latin American-sized hole in its network, and switch Iberia to Star Alliance.

"If both (antitrust and the merger) fail then it poses the question whether the airline industry is going to fold down to two alliances rather than three," RBS airlines analyst Andrew Lobbenberg said.

But even if Lufthansa did not bid for Iberia, a failure to merge with BA could destroy the two airlines' current deal to share UK-Spain routes and prompt the Spanish carrier to consider defecting.

Iberia Chairman Fernando Conte told a conference call last Thursday it was committed to becoming a core member of Oneworld, but said it had analysed joining both Skyteam and Star Alliance.

"If we move from Oneworld probably they would be in a worse position that we would be in, so it's pretty important for Oneworld to keep its main core partners," he added.

Negotiations between Iberia and BA are snagged on how to value the two carriers -- an issue complicated by BA's yawning pensions deficit.

"Overall the BA-AA transAtlantic agreement is probably more important for Oneworld than a BA-Iberia deal, but of course Iberia is one of its two main European members. If they leave it becomes a bit thin on the ground, especially with the Latin American strength Iberia brings," said the analyst in London.

Oneworld spokesman Michael Blunt said Tuesday's meeting -- one of the three Oneworld CEOs hold every year -- would focus on initiatives to strengthen the alliance which has generated $5 billion of revenue in cross-alliance products such as its Oneworld explorer ticket in the last 10 years. "It really is losing critical mass compared with its competitors," said Lobbenberg. "But ultimately the issue is whether they can build bilateral relationships and those are hanging on regulatory decisions or between the partners."

Oneworld future hangs on upcoming airline agreements

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