Sam Skinner's Game Of Darwin In The Sky

Transportation Secretary Samuel K. Skinner has been nothing if not consistent through eight months of unprecedented turmoil in the U. S. airline industry. Amid myriad protests that the airlines are collapsing into an uncompetitive oligopoly, his response has been stubborn: Let America's strongest airlines get stronger, but open U. S. skies to more foreign competition.

It's no surprise, then, that the new air treaty with Britain hews closely to this free-market vision. Skinner's primary goal during weeks of contentious negotiations was to ensure that America's strongest carriers, American and United, be allowed to replace two of its weakest, Pan Am and TWA, on routes between the U. S. and London's Heathrow Airport. For that, he was willing to grant British carriers vastly expanded potential to develop U. S. service--with the promise that talks will continue this summer for an even more liberal pact.

A byproduct of the new treaty is that it allows Pan American World Airways Inc. and Trans World Airways Inc. to complete the sale of their London routes, giving them cash to survive a while longer. Their survival matters because it preserves their assets for sale to stronger carriers. But Skinner's imperative was not keeping Pan Am and TWA alive, it was allowing United and American to thrive. U. S. strength in Londln is what counts.

Skinner got what he wanted. British Airways Ltd. long has enjoyed unchallenged dominance at Heathrow, which has led to its 40% share of travel between the U. S. and Britain (table). Despite big names and storied pasts, severe financial problems at Pan Am and TWA have hampered their effectiveness. Other carriers, U. S. and otherwise, simply have been denied access to Heathrow.

The deal will pit BA against America's best--and add a new British competitor: Virgin Atlantic Airways Ltd. Virgin received rights to fly to four new U. S. cities from Heathrow. The U. S. carriers, with huge domestic networks to feed passengers onto the London routes, will be formidable competitors. Virgin, which now flies only from London's Gatwick Airport, will turn up the heat with its roomy planes and clever ads.

Since Heathrow's longer runways will allow Virgin to carry more freight, it's already dropping fares 15% on U. S. flights. United Air Lines Inc. and American Airlines Inc. are also likely to cut fares to build business. BA Chairman Lord King complained that the agreement will damage his carrier's earnings. But Virgin Chairman Richard Branson--better known as the flamboyant creator of rock-'n'-roll label Virgin Records Ltd.--sees it this way: "BA controlled 90% of the British traffic out of Heathrow. This was the time to break that monopoly up."

'DUOPOLY'? U. S. officials may try to increase competition to London even more by pressuring American to give up a couple of its TWA routes to rival Delta Air Lines Inc., another strong player. American's deal with TWA has yet to be approved by the Transportation Dept., and Delta has protested that a "duopoly" is developing among U. S. carriers to London. Transportation sources say the Atlanta carrier may have a shot at getting TWA's Los Angeles-London route. But Delta would have to fly to Gatwick, since the new treaty allows only two U. S. carriers at Heathrow.

Considering the U. S. only asked to switch carriers, the British got plenty in return. For now, BA will be allowed extensive rights to pick up passengers in the U. S. and carry them to destinations in Asia, Australia, Mexico, and South America. British carriers were also given rights to fly directly between the U. S. and various European destinations. BA will still need the O. K. from those countries. But the pact creates a lot of potential.

The political test for Skinner's free-market credo is likely to come this summer, when he promises to open talks with the British aimed at liberalizing foreign investment rules and prohibitions against foreign carriers flying domestic routes. BA makes no secret of its desire to invest in a U. S. carrier and to carry passengers between U. S. cities.

Congress and U. S. labor unions are likely to challenge such measures. They want competition but not foreign challenges that they say could compromise national security or jobs. "Congress will fight this," says a senior aviation committee staffer. But Skinner keeps hanging tough. The battle could be a doozy.

      Share of passengers between the U.S. and Britain*
      PAN AM
      *Summer 1990; Pan Am and TWA's routes to Heathrow are set to be sold to United 
      and American, respectively
      DATA: BW
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