Answering Alliance Critics

<FONT SIZE="+3"><B> Answering Alliance Critics</B>

<I>It is more than a touch ironic that some U.S. and European airlines-many of them engaged in their own code-sharing alliances across the Atlantic-are throwing rocks at American Airlines' and British Airways' plans to do the same.</I>

Virgin Atlantic chairman Richard Branson has led the charge, bragging to anyone who will listen that he has lobbyists and public relations people working day and night to sabotage the American-BA alliance. Given Branson's bent for self-promotion, no one should be surprised by this. But no one should be fooled by it, either. Opponents of this deal want to thwart competition, and they are doing so with grandiose claims that do not withstand serious analysis.

The facts are that like the United-SAS, Northwest-KLM, and Delta-Sabena-Swissair-Austrian alliances, an American-BA alliance will provide more choices for consumers across the Atlantic, more competition in the airline industry and a strong incentive for the United States and United Kingdom to break a regulatory deadlock that has dogged competition for five decades.

For years, the ability of U.S. carriers to compete overseas has been hampered by restrictive treaties hammered out after World War II, when a benevolent U.S. government agreed that war-weary European countries should be allowed to develop their own airline industries without undue competition from more established U.S. carriers.

This rebuilding has been accomplished, and our government now rightly believes that U.S. carriers should compete as freely in Europe as they do in the deregulated U.S. environment. This competetion has taken the form of code sharing and marketing alliances, which allow U.S. and European carriers to pool resources and share revenue on existing international flights. Consumers benefit from these arrangements as they have from deregulation in the United States, with lower fares, greater choices and more convenient travel.

Recognizing these benefits, the governments of the United States, Germany, the Netherlands, Switzerland and Canada, among others, have replaced their old treaties with new ones that embrace and promote competition. American and British Airways are encouraging the U.S. and U.K. governments to do the same.

Who benefits? Consumers, certainly, and American and BA, United, TWA, Delta and Virgin-many of the very carriers who are now crying foul. Let's take their arguments one by one.

<B>Fares.</B> Competition means lower prices and more choice, and recent history has been no exception to this rule. An April 1995 General Accounting Office report concluded that competition among alliances and other airlines not only lowered international fares, but resulted in new traffic as well. Twenty-five airlines now compete in the U.S.-U.K. market- including eight between Heathrow and JFK alone-and more than 70 airlines compete between Europe and the United States. In this environment, it's impossible for one airline to keep fares high and stay competitive. When the market is opened to even more competition, lower fares should be the result.

<B>Market share.</B> Critics complain that the AA-BA alliance would be "too big," pointing to a 61 percent market share that the carriers would hold in the U.S.-U.K. market. They fail to mention that this 61 percent share pales in comparison with the 74 percent market share enjoyed by the Delta-Sabena-Swissair-Austrian alliance in the U.S.-Switzerland non-stop market, the 100 percent market share of its U.S.-Austria non-stop, or the 64 percent share enjoyed by KLM-Northwest between the United States and the Netherlands.

<B>Heathrow access.</B> Branson also ignores his own airline's success when he complains that the Heathrow entry would be too restricted and takeoff and landing slots too difficult to get if the alliance goes through. In five years, Virgin Atlantic has increased its Heathrow slots from 20 to 62. Moreover, since 1991, 45 airlines have started service at Heathrow, with 71 new daily slots. The real issue at Heathrow is a restrictive bilateral that limits access to two U.S. carriers. The real numbers show that alliances like the AA-BA alliance are nothing to be afraid of: They have enhanced rather than stifled competition, and consumers have benefited as a result.

The alliance is part of a new era in international business travel-one that further opens the door to meaningful competition for all carriers. Those who fear this era would be better served preparing for it than engaging in shortsighted scare campaigns to prevent it.

Donald Carty is president of American Airlines.