Be Careful What You Wish For, You Might Get It

Be Careful What You Wish For, You Might Get It

Less than three weeks after advocating consolidation of European airlines, British Airways’ [BAB] Robert Ayling has got his wish. However, his reaction to the proposed purchase of a 20-percent stake in British Midland by Lufthansa has been less than welcoming.

Ayling has erupted over the Oct. 19 announcement by its UK rival that it is to initiate exclusive two-week talks with the Star Alliance, which could result in Star anchor Lufthansa – BA’s main European competitor – purchasing half the minority stake currently held by Scandinavian Air System (SAS).

BA instantly issued a stern comment demanding a governmental review of the, which it believes will give the German carrier an unfair advantage at both Frankfurt and BA’s jewel in the crown, London Heathrow Airport. It is understood that Ayling has also instructed lawyers to prepare for an appeal to either the UK government or the European Union.

“This is the beginning of the sale of British Midland to Lufthansa and is the start of consolidation in the European airline industry. British Midland is now under German influence,” said a statement issued by Ayling.

“Its immediate effect will be to allow not only Lufthansa but also its partner United Airlines [UAL] to influence the use of British Midland’s extensive slot bank at Heathrow. Star Alliance will now have more than 24 percent of the slots at Heathrow and nearly 70 percent at Frankfurt. BA has 38 percent at Heathrow and a minimal number at Frankfurt. (The deal), unless regulated, decimate competition on London-Frankfurt and on London-Scandinavian.”

But it did not stop there. In what many in the British media have called dubiously racist, the BA statement added: “British Midland by this deal allowed German and U.S. carriers direct influence over who flies from Heathrow and from many English regions. Just as Virgin (Atlantic) leased its space to Continental Airlines [CAL], thereby allowing Continental direct access to British traffic, so British Midland has sold its rights to overseas rich and powerful carriers with huge domestic markets where they face little competition.”

This jingoism has also taken the thunder from the British Midland deal, which may end almost five months of speculation over which alliance the airline would join (WAN, June 11, 1999). Though the Star Alliance and British Midland have remained silent over the matter since releasing a six-line announcement of their intentions, the deal could help change the face of the European industry.

The deal, which will require a final agreement and regulatory approval, will also net SAS an estimated US$145 million.

No explanation has been given to why British Midland Chairman Sir Michael Bishop did not offer his own personal holding (part of a three-person consortium owning 60 percent of the carrier), despite his assertion in Washington, D.C. earlier this year, that he would consider diluting his share.

But the final word, as it intended, must go to BA. Its tirade advocating all things English, was included the first sign that the dismissal of its anti-trust immunity application with American Airlines [AMR] by the U.S. Department of Transportation has hurt the oneworld alliance (WAN, July 16, 1999).

“(The British Midland deal) is a sell out to an alliance which has been given anti-trust immunity to share capacity and fix prices over the Atlantic and which carries out volume-related discount selling of its tickets. British Airways has been denied all these privileges,” said BA’s statement.

BA declined to comment further on its statement, or the schedule of legal action. British Midland, who this week has appointed an outsourced consultant to field all alliance based inquiries, would not comment on Ayling’s remarks.

COPYRIGHT 1999 Phillips Publishing International, Inc.

COPYRIGHT 2001 Gale Group