- Associated Press - Wednesday, July 14, 2010

BRUSSELS (AP) — British Airways and Iberia on Wednesday won the European Union’s regulatory approval to merge and to team up with American Airlines to share more of their lucrative trans-Atlantic routes.

The companies say the two deals will help them cut costs and survive a tough business climate as they struggle with falling passenger numbers and industrial unrest.

British Airways‘ merger with Iberia will create Europe’s third-largest airline with a market value of around $7.5 billion. They will keep their existing brand identities and claim the deal will create savings of 400 million euros ($530 million) a year by the fifth year.

The two loss-making airlines are among many struggling to survive after a fall in demand from both business and leisure travelers in the wake of the global credit squeeze. Those who are still traveling increasingly have turned to the cheaper fares of no-frills carriers.

BA and Iberia also plan to expand their Oneworld alliance with American Airlines, which currently coordinates how they sell and operate flights between the 27-nation European Union and the United States. They now will manage schedules, capacity and pricing jointly on flights from Canada, Mexico, Puerto Rico, Norway and Switzerland as well.

BA and Iberia said they expect the U.S. Department of Transportation to clear the deal shortly, allowing the airlines to start the joint business in the fall.

Bob Atkinson of travel Web site travelsupermarket.com said the deal potentially could create “more affordable fares, better connections and improved service” — but warned that savings may be hard for the companies to secure. BA currently is warring with workers over cutbacks.

The European Commission said it saw no antitrust worries with BA and Iberia merging since they don’t compete directly on many routes and would continue to face rivalry where they do — on flights from London to Madrid and Barcelona.

The tie-up will give them greater economies of scale as they lag behind other major airlines in Europe, following Air France’s tie-up with KLM, which made them second to Germany’s Lufthansa as the largest European airline by revenue.

Regulators did see more problems with the Oneworld deal and only cleared it after the three airlines made a binding promise to cede valuable takeoff and landing slots to rivals to help them start new routes between London and New York, Boston, Dallas and Miami from next year.

Some 2.5 million people fly these routes every year.

The commitment to satisfy the EU requirements will last 10 years, and the companies can be fined up to 10 percent of yearly global turnover if they don’t stick to their commitments. Regulators may review it after five years.

The three airlines will have to cede slots — but can demand payment for them — at New York’s John F. Kennedy International Airport and at London’s Gatwick and Heathrow airports only if rivals wanting to start new services to the four U.S. cities can’t buy the slots easily, which is usually the case.

Slots can cost up to 30 million pounds ($45.79 million) a pair at Heathrow, one of the world’s most congested airports.

BA says the three daily London-New York slots will be made available only if the number of airlines flying the route falls below “currently announced levels.”

Rival airlines also will be allowed to combine one of their flights with one from the Oneworld alliance when selling a return ticket and to get “favorable terms” for connecting flights for BA or Iberia’s short-haul flights in Europe.

This would allow an airline to sell passengers a ticket from Manchester to London on British Airways and then connect them to its own London to New York flight.

Travelers flying on the new routes also would be able to pick up air miles for frequent flier programs run by BA, American Airlines or Iberia.

The EU’s executive said the offer was necessary to eliminate antitrust worries that the wider Oneworld deal would allow the carriers to control trans-Atlantic routes and raise prices. It said there are now opportunities for new companies to enter the market.

It blocked similar efforts between BA and American Airlines to share routes in 1998 and 2002.

EU Competition Commissioner Joaquin Almunia said regulators now could approve the deal because the market has” changed fundamentally” as a result of a recent open-skies agreement between the EU and the United States that has allowed far more airlines to fly between both regions.

Antitrust agencies on both sides of the Atlantic long have been suspicious of how airline alliances such as Oneworld and Star Alliance affect prices for flying between Europe and the United States. The EU still is investigating the Star Alliance, which includes Lufthansa, Continental, United and Air Canada, as well as 

Associated Press business writer Jane Wardell in London and Associated Press writer Ciaran Giles in Madrid contributed to this story.


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