Commentary: Don't Blow This Chance To Open British Skies

In any David-and-Goliath battle, it's easy to root for the underdog. And Richard C. Branson, the scrappy head of Virgin Atlantic Airways Ltd., plays the perfect David. Warning of "monopolistic domination of North Atlantic routes" and higher fares for air travelers, he's pulling out all the stops to kill a proposed alliance between powerhouses American Airlines Inc. and British Airways PLC. In one scathing ad in late June, Branson reminded travelers that American's chairman and chief executive, Robert L. Crandall, once faced antitrust charges after suggesting in a 1982 phone conversation with a competitor that he raise his fares 20% so Crandall could follow suit the next day.

But don't be fooled by Branson's self-serving calls to completely scrap the BA-AA deal. The fact is that it offers the U.S. its best chance in 20 years to pry open the British aviation market, in particular London's coveted Heathrow Airport. That's because British Airways badly wants the proposed partnership to come off and will be prodding British authorities to make it work. That will finally give Britain an incentive to negotiate a more liberal aviation accord with the U.S.

BARGAINING TABLE. As it stands now, only American and United Airlines Inc. can fly to Heathrow under a 1977 treaty. And the British government has the right to review and approve all fare requests. Britain has rejected more fare changes than all other European countries combined, says Patrick V. Murphy, the U.S. Transportation Dept.'s deputy assistant secretary for aviation and international affairs. And the changes Britain nixes often involve rate cuts on flights beyond U.S. gateways. That hardly makes it a consumer's paradise.

The U.S. has moved steadily to bring the British to the bargaining table. By signing "open-skies" accords with 11 other European countries and granting antitrust immunity to such alliances as Northwest- KLM, United-Lufthansa, and Delta-Swissair-Sabena-Austrian Airlines, U.S. negotiators have been pressuring the British to liberalize their aviation market or watch traffic be drained away from Heathrow by other European hubs.

The hard part now will be hammering out an accord with Britain that will protect consumers. For starters, U.S. negotiators must demand that all U.S. carriers be entitled to serve Heathrow. And with that right must come access to desirable takeoff and landing slots. Already, competitors are calling for American and BA to give up some of their slots, a move they'll resist. "This was not exactly given to us. We paid a lot for our routes," says Robert A. Britton, managing director of international affairs at American. BA alone controls 38% of the almost 1,200 daily slots at Heathrow, while American holds 2%. American argues that enough slots can be created for newcomers by better scheduling and runway management. It says that such measures have added more than 70 daily peak-hour slots at the airport since 1992.

SOLUTION. Another solution would be for the British to embrace fully the buying and selling of slots, a practice common at a few big U.S. airports. If that happened, "the problem would go away in an instant," says Daniel M. Kasper, co-chairman of the transportation industry program at Coopers & Lybrand. "There are a number of Third World carriers at Heathrow who would, with several million dollars in their pockets, gladly change airports" and move to Stansted or Gatwick airports, he says.

Branson has a good point on one issue: antitrust concerns. American and BA together hold 60% of the U.S.-Britain aviation market. To protect consumers on some routes, U.S. regulators will likely have to insist on exceptions to the antitrust immunity sought by the two carriers. For instance, the partners would control 100% of nonstop seats between London and Dallas. When the U.S. approved antitrust immunity for Delta Air Lines Inc.'s alliance with Belgium's Sabena World Airlines, Austrian Airlines, and Swissair and United's with Germany's Lufthansa, the Transportation Dept. excluded similar routes, and it should do so again in any American-BA deal.

Done right, an open-skies agreement should mean better service and, at the least, stable fares for consumers. American and BA already acknowledge that the price for their alliance is going to be a U.S. open-skies accord with Britain. The challenge now is how to structure the agreement so consumers--not carping rivals like Branson--get a good deal.

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