JET SET A TALE OF TWO AIRLINES - British Airways has had to negotiate a spot of turbulence in its plans to form a ’strategic alliance’ with American Airlines. By Sue Beenstock

If its boss has his way, the ’world’s favourite airline’ is about to balloon to twice its size. Within months, the two biggest airlines in the world, British Airways and American Airlines, aim to have a ’strategic alliance’ in place, creating a giant network straddling the world and serving 36,000 city pairs - doubling their current reach.

If its boss has his way, the ’world’s favourite airline’ is about

to balloon to twice its size. Within months, the two biggest airlines in

the world, British Airways and American Airlines, aim to have a

’strategic alliance’ in place, creating a giant network straddling the

world and serving 36,000 city pairs - doubling their current reach.



There are however a few small local difficulties to negotiate first.



Although the proposed deal was announced six months ago, it was European

competition commissioner, Karel van Miert’s angry outburst in

mid-January which pushed the issue into the public arena.



Van Miert was reacting to Trade Secretary Ian Lang’s preliminary

decision, that, provided BA made certain concessions, he would not refer

the matter to the Monopolies and Mergers Commission. Van Miert had other

ideas, claiming that BA takes advantage of EC law on some issues (in

1995 Van Miert put pressure on Air France to relinquish its stranglehold

on internal flights and BA purchased the slack), but objects when the EC

tries to curb BA’s might.



In particular, Van Miert claims that competition will be eliminated

overnight on 13 UK to US routes and the BA/AA alliance would take

between 78 per cent and 83 per cent of traffic on routes such as London

to JFK.



The OFT recommended that BA should sell 168 take-off and landing slots

at Heathrow worth around pounds 180 million on the ’grey market’. But

Van Miert is against creating a market in slots and demands that BA

hands over ’considerably more’ than that without payment. He also claims

that some routes should be given up completely in the interests of

competition.



’We aren’t trying to mount a PR campaign for BA’s rivals,’ says EC

spokesman Angel Carro. ’But it’s important the British Government has

all the facts.’



Brussels intervention



Some insiders claim BA was taken aback by the ferocity of the European

Commissioner’s objections. BA’s director of corporate communications,

Kevin Murray, guffaws at the suggestion. After all, Van Miert’s outburst

was prompted by BA’s point-by-point 144-page rebuttal of Brussels’

concerns, which hardly amounts to overlooking the commission’s

viewpoint, he says.



Van Miert’s insistence that Brussels should dictate some of the

conditions of the alliance has inflamed Eurosceptics like Bill Cash and

Sir Teddy Taylor. ’The British people are sick to death of interference

by unelected commissioners,’ says Cash. It is nothing but ’meddling’

according to Taylor.



Their widely-reported hostility may be convenient to BA, but does not

appear to have been exploited, possibly because of the proximity of the

General Election and the political minefield it could land them in. BA’s

stand at both party conferences contained scant information about the

proposed alliance and according to one MP with a special interest in

aviation, ’staff were poorly informed and unwilling to talk about the

proposal. It was as if they were embarrassed’.



While BA’s opponents - Virgin, Delta, United and Continental, plus

assorted consumer groups - have used the media to put their message

across, Murray dismisses that tactic as ’far too crude’. Instead, his

in-house teams, covering government, international relations and

communications, have each concentrated on lobbying and targeting only

their key audiences.



These were broken down into: regulators on both sides of the Atlantic;

employees of both companies; key customers and governments - all briefed

prior to the announcement last June.



As far as British and EC power brokers are concerned, much has rested on

the political skills of chief executive Bob Ayling, a former specialist

in European law at the Department of Trade and legal undersecretary at

the department working on the privatisation of British Airways in

1983.



His fellow former senior civil servant, David Holmes, director of

corporate resources at BA, also has high-powered contacts.



’It comes down to three or four key alliances in Government,’ says one

insider. ’It helps being the former national carrier but it helps even

more when Lang and Heseltine are your chums, very sympathetic to BA and

Britain plc.’



While Ayling, Holmes and their teams have been pressing the flesh in

Brussels and at the OFT, Board of Trade, and Department of Transport,

BA’s American team has been doing the same in Washington, backing up

American Airlines’ massive onslaught.



Hitting the right lobbying note



In Britain, at each stage of the campaign, a key audience has been

targeted and research via phone and direct mail has been carried out.

For example, several hundred key customers were called on the phone and

asked what they saw as the benefits of the proposed alliance, whether

they thought BA would be given the go-ahead and how their view differed

from that in the headlines. This was backed up by a direct mailshot

spelling out the facts and how BA customers would benefit.



Keeping all lobbying in-house, except for using external legal advisers

in Brussels and Washington, has allowed BA to run a very tight ship. It

is in the process of re-pitching for a lobby company and the current

incumbent, Adele Biss, says she has ’not been working on this in any

depth’. Since BA’s own staff has largely managed without the services of

a lobby firm so far, it’s unlikely the new firm will have much

involvement in the issue.



But how much work BA staff have on their hands in the next few months

will depend largely on how big a stink Van Miert and other opponents to

the deal kick up. They’re a disparate lot. There are consumer groups and

then there are business rivals. The consumers’ representatives claim a

monopoly and higher prices will be the ultimate result of the BA/AA

deal, and have used press reports and lobbied regulators to get the

point across.



There’s no chance of business rivals banding together on a lobbying

level, ’we’re fighting for the same territory,’ says one. But their

demands are broadly similar. One is demanding at least twice the number

of slots which the OFT suggested. Another, three times the number. And

they don’t seem to be able to agree on whether slots should be traded on

an open market. One aviation regulatory body is telling ministers this

would be a bad idea, encouraging smaller airlines to cease running

planes and become nothing but slot brokers. All say they responded to

the OFTs proposals before the 10 January deadline.



BA responded to accusations with a 14-page document entitled ’Myths,

Reality and Facts’ which was distributed to journalists and ’interested

parties’ and countered each argument point by point. Its main argument

was that the deal could only go ahead subject to being granted

anti-trust immunity and an open skies agreement in the States. Open

skies, it claims, will clear the way for free entry into the American

market, boosting traffic by 20 per cent. As for slots being in short

supply, BA claims that too is a myth: 45 new airlines have bought slots

at Heathrow in the last five years, it says. And since BA has invested

millions in buying them, it should not be asked to give them to

competitors.



Should the deal go ahead, there could be dramatic implications for many

staff, particularly those covering North Atlantic traffic. Murray claims

there will be no redundancies, although role switching is likely. ’There

will be some synergy in how we undertake PR’ he claims. What that means

exactly isn’t clear. It may not even be clear to his colleagues at AA

since, according to Lizann Peppard, AA’s regional PR manager, nothing

has been guaranteed as far as job security goes, although like Murray,

she is confident of her own post. ’Well I would say that wouldn’t I?’

she says. ’But the individual brands will remain distinct - customer

research has proved that’s what people want - that in itself will

justify separate PR offices.’



What Murray calls ’operational leverage’ will be shared between the two

public affairs offices, so AA will benefit from BA’s privileged access

and understanding of British media, and vice versa.



But according to one well-placed observer, behind BA’s seemingly slick

campaign is a surprisingly seat-of-the-pants operation: ’They’ve been

left behind by the global partnerships already set up by Lufthansa et al

and as usual BA has wrapped itself in the British flag, not done a

brilliant job of explaining its arguments to its customers but talked

confidently to the men in suits ... It’ll probably work.’



VIRGIN ATLANTIC: PLAYING THE MONOPOLY GAME



Other than BA, Virgin Atlantic is the only transatlantic domestic

carrier. Despite being a minnow compared to BA, Virgin argues the

proposal is anti-competitive. It began a vociferous opposition campaign

in a bid to ensure the proposal was the subject of a full parliamentary

enquiry.



’We spent a lot of time looking at how they would tie up 60 per cent of

the Britain to US market, even 100 per cent on some, such as the Dallas,

routes,’ says corporate affairs director Will Whitehorn. Written

submissions were made to the transport committee’s investigation, Office

of Fair Trading, Monopolies and Mergers Commission and US carriers. The

latter, says Whitehorn, had already assumed the alliance was inevitable.

Virgin’s campaign has focused on three main issues:



- The availability of take-off and landing slots at Heathrow. ’BA would

have to give up a huge number to allow reasonable competition, around

three times what the OFT now claims it should concede (a total of 500),’

says Whitehorn.



- BA and AA are the world’s biggest carriers. They could swamp travel

agents with loyalty discounts and on some routes the travelling public

would have no choice of airline and face higher prices.



- Combined frequent flyer programmes - which give business customers

huge discounts if they stay loyal - could prove unassailable.



As well as targeting regulators, Virgin used lobbying firm Politics

International to talk to opinion formers and provide contacts and ideas.

PI was hired at the start of the campaign in June and used the Virgin

executive, headed by Branson, in all briefings. Whitehorn claims:

’opinion formers are our target rather than the public’, nevertheless,

Virgin has spent thousands on press ads. Even last week’s (Jan 20)

full-page Freddie Laker ad in the Times, was paid for in part by Virgin.

And since last June, tail fins on Virgin jets have sported the slogan

’BA/AA No Way’.



Surprisingly, Whitehorn claims ’Europe is a red herring. Reference to

the Monopolies and Mergers Commission is the real crux.’ The time for

lobbying and tactics is over, Whitehorn claims. ’This is the end of the

play.’



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