DOT tentativelly approves airline alliance

Friday, January 25, 2002

Associated Press WriterWASHINGTON (AP) -- American Airlines and British Airways on Friday said they would turn down a Transportation Department ruling that would require them to give up more than 200 flights in exchange for forming an alliance.

"We will not do this deal at this price," American Chairman Don Carty and British Airways Chief Executive Rod Eddington said in a joint statement. "We made it clear from the start that we would not conclude the deal if the regulatory price was too high. Regrettably this has proved to be the case."

The Transportation Department on Friday tentatively agreed to give the airlines' antitrust immunity for an alliance that would allow them to set rates and routes together and sell each other's tickets. But the department said the airlines must first give away 224 takeoff and landing slots for travel between U.S. cities and London's Heathrow Airport.

This is the second time that American Airlines and British Airways, which have been trying to combine forces since 1996, have called off a proposed alliance after U.S. officials said they had to give up takeoff and landing slots.

"The conditions laid down by the U.S. government do not make sense for either company," Carty and Eddington said. "We will not acquiesce to unrealistic, and in our view, unnecessary demands. For us, the price is just not right."

The Transportation Department's ruling would have allowed four additional U.S. airlines to fly to and from Heathrow -- doubling the number of airlines on the coveted routes and significantly increasing the number of flights, especially from the Northeast.

Currently, only four airlines -- American, British Airways, United Airlines and Virgin Atlantic -- fly between the U.S. airports and Heathrow.

The chairman of one of the other airlines, Virgin Atlantic Airways, said the Transportation Department didn't go far enough in shifting slots to other carriers.

"The only way that the regulators can ensure access to Heathrow is to divest American and BA of significant numbers of slots at the airport," Sir Richard Branson said. "And not just any old slots. They must be slots at the optimal times for trans-Atlantic travel -- not at the margins of the day."

The department said that the new slots would have gone to Continental, Delta, Northwest and US Airways, and would provide three more daily roundtrips each from Kennedy Airport in New York and from Newark, and one more from Boston.

In all, under the rejected plan, there would be 6,200 new flights between U.S. cities and Heathrow Airport per year, about 25 percent more than the current 25,000 flights.

As part of the deal, the department also tentatively approved a marketing alliance between United Airlines and bmi british midland. The British airline would have to give up slots to allow United to fly roundtrip between Boston and Heathrow.

Both the Justice Department and Congress' General Accounting Office said the proposed American-British Airways alliance could reduce competition and drive up fares.

The GAO said earlier this month that the alliance "could dominate markets between major U.S. cities and London." And the Justice Department said in December that the combination "would likely result in higher air fares and reduced service."

The Justice Department had said it would oppose the agreement unless the airlines gave up flights to enable competitors to offer roundtrip service between London and the cities of New York and Boston.

Interested parties were given 31 days to comment on the order before it becomes permanent.

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