<H1> BA-AA Ink Marketing Deal</H1>By Jay Campbell
New York - The alliance between American Airlines and British Airways will offer many benefits to business travelers, but it also could have serious ramifications for negotiations by corporate buyers unless the respective governments can preserve competition in the U.S.-London market.
AA and BA announced the long-awaited deal earlier this month, saying they will coordinate passenger and cargo activities between the United States and Europe, introduce code sharing on 36,000 city pairs and establish full reciprocity in their frequent flyer programs.
AA chairman Robert Crandall said the deal, which covers nearly $4 billion in revenue, should go into effect next April pending a grant of antitrust immunity by the U.S. government.
U.S. officials have said that improved access to London's Heathrow Airport under an open skies agreement would be a requirement for the granting of antitrust immunity. In addition, DOT's deputy assistant secretary for aviation and international affairs, Patrick Murphy, recently said that airlines not currently operating at Heathrow "will have to be in place and operating there" before the alliance takes hold.
Murphy's statement should provide a sigh of relief for corporate buyers, who were looking at the elimination of price competition on several key London routes where AA and BA are either the only two competitors or the only two offering significant frequency. Continental and TWA have applied to DOT for rights to Heathrow should slots become available.
Murphy said that among the new carriers to serve Heathrow, low-cost competitors could be included, adding a new competitive element to air service in the United Kingdom.
Crandall noted that under the new policy allowing antitrust immunity, airlines are setting the stage for competition among four alliances: AA-BA-Qantas-Canadian, United-Lufthansa-Thai-Air Canada, Delta-Sabena-Swissair-Austrian (see Washington Wire, this page) and Northwest-KLM. "These four groups will compete for every passenger and piece of cargo in the world," said Crandall.
Asked whether AA and BA will pursue joint global deals in the way that United and Lufthansa plan to (BTN, June 10), Crandall said, "I expect that AA and BA will be aggressively pursuing every piece of business as we bring our operations together to have a broader sales force. As Lufthansa and United seek out corporations, we will compete. Certainly one of the reasons we are joining this alliance is to compete for multinational contracts."
Roger Maynard, director of investments and joint ventures at BA, said companies will find deals with the AA-BA combination highly beneficial because "the alliance can meet a higher percentage of a company's air volume using the world's broadest network of air service and the best frequent flyer program."
Among the alliance's other advantages are the carriers' ability to coordinate their departure times to provide more frequency, and frequent flyers' ability to claim awards on either airline using miles from the other, perhaps easing compliance. The airlines also will tap each other's resources on electronic ticketing.
Travel managers contacted by BTN were reluctant to comment on what the alliance might mean for them, noting that it hinges on government approval.
Kevin Brady, vice president of travel and executive services for Merrill Lynch, said his company buys $20 million a year in travel between its New York headquarters and London and has preferred supplier relationships with both airlines. "It looks like a strong code share to me, but I don't know where it's headed," he said. "I have a great deal with both carriers, and I don't know if I see any benefit to this alliance. I certainly don't see them coming at me with bigger discounts."
Some consultants said the deal would hurt the corporate market without major route restrictions. "You would have one less player to pit against each other," said Robert Langsfeld, a principal in incline Village, Nev.-based Langsfeld & Fazio Associates. "It would create a higher cost structure and would have an adverse impact on the corporate buyer. If the government manages to preserve competition, however, the alliance could be beneficial."
"Anytime you merge two serious competitors, you remove a significant element of competition, which is no good for corporate users," pointed out Harold Seligman, president of Stamford, Conn.-based Management Alternatives. "However, the long-term benefits of open skies could be that competition actually increases as Heathrow is opened up."
-Barbara Cook contributed to this article.