British Airways Discuss US Tie-up

British Airways is expected to forge an alliance with Continental Airlines after yesterday admitting it is exploring opportunities to cooperate with the US carrier as well as American Airlines, its current oneworld partner.

Discussions are not thought to include any plans for a merger, as current foreign ownership rules of US airlines would rule out such a move. Rather, if the carriers successfully applied for immunity from antitrust regulators this could potentially give them the right to co-operate over fares and frequent-flyer programmes as well as co-ordinating schedules.

BA and American Airlines have twice sought antitrust immunity in 1997 and 2001, but were hindered by regulators who would only approve their application if the two airlines disposed of some of their valuable landing slots at London’s Heathrow Airport.

BA refused to provide further details on the nature of the cooperation and added only that further details would be announced when appropriate”.

BA and American Airlines are already partners in the oneworld global alliance, which brings together ten of the world’s airlines. Talks are likely to involve Continental joining this group.

Speculation increased on Sunday that Continental - which is currently a member of a smaller rival alliance called SkyTeam - would seek a partnership with American Airlines and BA, after talks ended with United Airlines about a potential merger.

In response, Continental said it would stay independent for the time being but would “continue to review potential alliances and our membership in SkyTeam”.

“We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term, it said.

High oil prices have caused enormous losses among airlines, particularly in the United States, forcing them to seek bankruptcy protection, cut capacity and look for mergers.

Global alliances are attractive because they are subject to less regulatory scrutiny than outright mergers, while allowing airlines to share passengers and expand their geographic reach.

European airlines are also feeling the effect of high fuel costs and the situation is about to get worse as much of their oil hedging ends in the next few months.

BA said last October that it was looking to forge a closer relationship with American Airlines, ahead of the “Open Skies” initiative that came into effect last month. The airlines are expected to argue that the opening up of the world’s busiest airports to more competition, particularly at Heathrow, have ruled out the need for slot divestitures.

Sir Richard Branson, President of Virgin Atlantic, said his company would “fight tooth and nail to ensure that regulators say no-way” to a three-way tie-up.

He said: When BA and AA first tried to get together nearly ten years ago, the regulators ruled it was against the consumer interest. Nothing has changed.

“A link-up between BA and AA is still anti-competitive and now they have the cheek of trying to add Continental to the mix too. This triple whammy would reduce effective competition across the Atlantic and the regulators should make it absolutely clear that it would have no chance of getting off the starting grid.”

British Airways shares closed at 227 pence, up 6 pence, or 2.5 per cent.

Continental and American Airlines could not be reached for comment.

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