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Soaring costs are fuelling the search by big airlines for new partnerships

by Rachel Robson

A major tie-up between British Airways, American Airlines and Continental Airlines could be on the cards if recent discussions between the three airlines are anything to go by. US airlines have been keen to form new alliances following news of merger plans between Delta Air Lines and Northwest Airlines last month, which is set to create a new US leader.

Rising fuel prices and an increasingly gloomy financial outlook are also feeding speculation that consolidation between carriers is set to rise.

Although no details have been disclosed by the three airlines, many experts believe that Continental is considering joining the Oneworld Alliance, of which British Airways and American are already members. Continental is currently a member of SkyTeam, but if it were to join Oneworld instead, the three airlines could apply to the US and European competition authorities for antitrust immunity for a transatlantic joint venture. This would enable the carriers to legally liaise more closely over fares, and allow them to coordinate their schedules. It would also help them compete against Delta and Northwest.

British Airways and American have previously applied for such immunity from regulators for their alliance, but plans were dropped after they discovered they would have to give up several takeoff and landing slots at Heathrow Airport.

Virgin Atlantic’s founder and president, Sir Richard Branson, has already voiced his lack of support about a potential tie-up between the three other airlines, believing it to be anti-competitive.

The three carriers will also be closely watching talks taking place later this month in Slovenia, where regulators will discuss the second stage of the Open Skies agreement, which came into effect at the end of March. The discussions will focus on the possibility of lifting ownership and control restrictions on US airlines, and permitting European airlines to operate domestic flights in the US and invest freely in US airlines with no limitations. An agreement must be reached by 2010.

British Airways increased its fuel surcharge last Friday on the back of high oil prices. Although customers only face a £3-a-flight additional charge for short haul flights, taking the total to £13 one-way, those flying for more than nine hours will be hit with a £10 additional charge to £63 one-way.

The higher surcharge won’t have done British Airways any favours, considering it has already lost popularity following the Terminal Five fiasco. Things have gone from bad to worse for Europe’s third largest airline, with its shares currently around 239p against last year’s peak of more than £5.