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EU clears airline links
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July 8, 1998: 1:44 p.m. ET
British Airways-American Airlines alliance still needs Britain's approval
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NEW YORK (CNNfn) - The European Commission said Wednesday it has recommended approval of an alliance between British Airways and AMR Corp.'s American Airlines provided they give up 267 slots at London's Heathrow and Gatwick airports.
The Commission also took action on a separate link-up involving Germany's Lufthansa, Scandinavian Airlines System (SAS) and UAL Corp.'s United Airlines, ordering the would-be partners to reduce the combined frequencies of their weekly flights if asked to do so by a competitor within six months after the alliance goes into effect.
American Airlines greeted the preliminary rulings with caution, noting that some elements of the tentative decision "would penalize the alliance unfairly."
"Nonetheless, we look forward to completing the EC review process and then promptly obtaining final approvals from the U.S. and U.K. governments," Don Carty, American's chief executive officer, said in a statement.
The EU said it will take action on two further outstanding trans-Atlantic airline alliances by the end of 1998 to determine whether they conform to EU competition rules.
Those alliances are between Dutch carrier KLM and Northwest Airlines, and between Sabena, Austrian Airlines, Swissair and Delta.
European Competition Commissioner Karel Van Miert, the EU's equivalent of an American antitrust watchdog, said at a press conference in Brussels Wednesday that Lufthansa, SAS and United will have to give up 15 U.S. flights out of Copenhagen and the rest from Frankfurt as a condition of partnership.
Cut number of trans-Atlantic flights
In a draft recommendation to the British authorities, Van Miert also suggested that British Airways and American Airlines reduce the number of flights between the United Kingdom and Chicago, Dallas and Miami to make room for competitors.
He said the trans-Atlantic carriers would be required to cede 220 to 230 slots at London's heavily-trafficked Heathrow airport, and the remainder at Gatwick, also in London. The two airlines currently have 630 weekly take-off and landing slots.
Van Miert expressed confidence that the British government will back his position on the British Airways-American Airlines alliance. He said he expected British Trade Minister Margaret Beckett to issue a statement Wednesday reiterating this support, according to wire reports.
EU regulators are concerned -- and rival airlines have complained -- that the British Airways-American Airlines deal to coordinate passenger and cargo traffic across the Atlantic will significantly reduce competition between the United States and Britain.
The alliance would command approximately 60 percent of air traffic between the countries. The Commission's recommendation does not mean the alliance can take off.
The rulings have a long way to go before they become law. A final decision lies with Britain, possibly in the fall, and then British authorities still will need to negotiate an "open skies" agreement with the United States, a condition both countries set to approve the deal.
Under an agreement between the United States and Britain, American Airlines and United Airlines are the only U.S. carriers permitted to fly into London's Heathrow, one of the world's busiest and most sought-after hub airports.
Robert Ayling, British Airways' chief executive officer, told CNNfn Wednesday that he believed the EU rulings were "the high-water mark of the conditions."
He suggested that the 267-slot reduction ordered by the EU would be used as a starting point in coming talks between regulators and the airlines over the final shape of any competition rules.
"We have been struggling away for quite a long time to make our case, to explain this complicated market to the regulators," Ayling said.
Slot allowance subject to change
In issuing the preliminary rulings Wednesday, Van Miert stressed his concern that the alliance doesn't block future competition.
"The key competition concerns of the Commission are the reinforcement of BA/AA's dominant position on three hub-to-hub routes and the significant barriers to entry that would be created by the alliance," he said at the news briefing in Brussels.
The maximum slot allowance, 267, is based on 1996 traffic figures and will be revised to reflect 1997 levels, Van Miert said.
Other conditions of the proposed BA/AA alliance entail cooperation on frequent flyer programs, computerized reservation systems, code-sharing and relations with travel agencies.
Whenever a rival airline wants to launch a new service or expand an existing one, the alliance will be obliged to make available any necessary landing and take-off slots in London.
The Lufthansa-SAS-United alliance has been in operation for two years and Lufthansa executives have railed against the European intervention.
In a statement Wednesday, Lufthansa repeated this criticism.
"The EU apparently sees fit to clamp draconian restrictions on airline alliances that have already been approved by regulatory authorities," Lufthansa said, responding to demands that Lufthansa, SAS and United give up 108 slots in Frankfurt and Copenhagen to proceed with the link-up.
Shares of AMR (AMR) slipped 3/4 to 86-1/8 in midday trading Wednesday. American depositary receipts of British Airways (BAB) were down 1-13/16 at 112-5/16.
-- from staff and wire reports
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