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U.S., European Carriers Get OK to Talk Pricing

Alliances: Move affects Delta, United. American wants a similar deal; U.S. wants concessions.

May 22, 1996|From Bloomberg Business News

The U.S. said it will allow Delta and United airlines and their respective European partners to discuss pricing, clearing the way for the airlines to coordinate services as if they were a single airline.

At the same time, the Clinton administration sent a signal to Britain that liberalized air treaties would be required before such clearance would be given to American Airlines and British Airways, which have been reported to be in similar talks.

Many airline partners already coordinate various aspects of their operations, but today's grant of antitrust immunity to these airlines specifically lets them collaborate on pricing--normally considered a felony.

The U.S. Transportation Department gave final approval for links between Deutsche Lufthansa and UAL Corp.'s United, and gave tentative approval to Delta, Swissair, Sabena and Austrian Airlines. Final approval is expected within two weeks.

The green lights come just as British Airways and AMR Corp.'s American Airlines are discussing a broad alliance of their own--and should reinforce the message that, like the German-U.S. and Swiss-U.S. links, approval of other commercial accords will require "open-skies" agreements between those countries.

"The precedent has certainly been set," said Chris Partridge, an analyst with Avmark International, an aviation consultant in London.

The analyst said British Airways and American will seek to use the U.S. approval of the other alliances as leverage to argue that they will be left behind if they don't conclude a similar agreement. British Airways, which owns a 25% voting stake in USAir, has long lamented its inability to win wider approval for cooperating with that carrier.

But U.S. negotiators have stood firm, insisting on quid pro quo. Any broader commercial ties will rest on revising air agreements in a fashion that would give U.S. carriers greater access to British markets, especially Heathrow Airport, the world's most important for international connections.

Avmark's Partridge noted, though, that the scale of any American-British Airways venture "is in a different league" and could have a tougher time getting clearance.

American and British Airways are the dominant carriers across the North Atlantic, with 14.6% and 13.7% of the market, respectively.

The combined share for the United-Lufthansa linkup will be 12%, matching the share for Delta and its partners, Avmark estimates.

A British Airways-American agreement might be a long way off, not only because of the delicate considerations in letting two such large carriers work together, but also because U.S. and British negotiators have been quibbling for several years now over a new air treaty, with little success.

Antitrust immunity from pricing talks is key, though, for serious commercial alliances. Immunity can generate significant revenue for carriers, allowing them to coordinate pricing and discuss the number and types of aircraft needed to meet demand on particular routes.

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