Unfriendly Skies

The latest airline war: American Airlines versus everybody.

EVER SINCE American Airlines CEO Robert Crandall announced in June that the British were coming—that Fort Worth-based American planned to team up with British Airways to share routes, passengers, and revenue—he’s been as popular as an airline meal. “Unfair competition,” cry attorneys for USAir. “Legalized price-fixing,” charges Continental Airlines GEO Gordon Bethune. And Richard Branson, the CEO of Virgin Atlantic Airways, a British Air rival, is running full-page newspaper ads on both sides of the Atlantic filled with excerpts of fourteen-year-old telephone conversations in which Crandall allegedly discussed price-fixing.

Sour grapes,” replies American spokesman John Hotard, though even he would have to admit that the coming together of American and British Air is a bit strange. After all, former British Air CEO Sir Colin Marshall once referred to Crandall as Wretched Robert. But lately, the two airlines have become allies in the high-stakes race to dominated the global travel market—and dominate is the right word: British Air is the world’s largest international carried, and American is the third largest. If approved by the U.S. Department of Transportation, the partnership, like similar deals struck between KLM and Northwestern Airlines and United Airlines and Lufthansa, would enable American and British Air to operate in many ways as one company without formally merging.

Yet critics believe a merger is precisely what the airlines have in mind—and that it’s illegal. Because American and British Air already control nearly two thirds of the flights between the U.S. and London’s Heathrow Airport, there is some fear that the carriers would effectively form an invincible behemoth with a stranglehold on prices and takeoff and landing slots. “That’s what’s causing all the reaction,” says Jeffrey Long, an airline industry analyst with J.P. Morgan Securities in New York. In July the U.S. Department of Justice launched an investigation into whether the deal would violate U.S. antitrust regulations.

That’s only one hurdle that American and British Air have to clear. The U.S. and British governments also have to sign a long-sought-after “open skies” agreement, which would allow more airlines to fly into London. Yet while this would theoretically benefit all carriers wanting access to Heathrow, rivals of American and British Air complain that the airport is already operating at near-capacity; they say the only way the deal would benefit them is if the pair relinquished some of their existing Heathrow slots—and American and British Air say they won’t.

American spokesman Hostard says the hand-wringing is unnecessary. “We think this deal should be granted without any exceptions being made,” he insists. “There were no exceptions in the other alliances; they were not told to give up service. We are pressing the government not to hold us back or take anything away.”

A final ruling on the deal should come sometime this fall. In the meantime, Bob Crandall is humming “God Save the Queen.”

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