EU Clears BA-Iberia Merger, Alliance with American

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    NEWSLETTERS

    BA/Iberia to share Atlantic routes with American Airlines.

    British Airways and Iberia on Wednesday won the European Union's regulatory approval to merge and to team up with Texas-based American Airlines to share more of their lucrative trans-Atlantic routes.

    The companies say the two deals will help them cut costs and survive a tough business climate as they struggle with falling passenger numbers and industrial unrest.

    British Airways' merger with Iberia will create Europe's third-largest airline with a market value of around $7.5 billion pounds. They will keep their existing brand identities and claim the deal will create annual savings of $530 million by the fifth year.

    The two loss-making airlines are among many struggling to survive after a fall in demand from both business and leisure travelers in the wake of the global credit squeeze. Those who are still traveling have increasingly turned to the cheaper fares of no-frills carriers.

    BA and Iberia also plan to expand their oneworld alliance with Fort Worth-based American Airlines, which currently coordinates how they sell and operate flights between the 27-nation European Union and the United States. They will now also jointly manage schedules, capacity and pricing on flights from Canada, Mexico, Puerto Rico, Norway and Switzerland as well.

    BA and Iberia said they expect the U.S. Department of Transportation to clear the deal shortly, allowing the airlines to start the joint business in the fall.

    Bob Atkinson of travel Web site travelsupermarket.com said the deal could potentially create "more affordable fares, better connections and improved service" -- but warned that savings may be hard for the companies to secure. BA is currently warring with workers over cutbacks.

    The European Commission said it saw no antitrust worries with BA and Iberia merging since they don't compete directly on many routes and would continue to face rivalry where they do -- on flights from London to Madrid and Barcelona.

    The tie-up will give them greater economies of scale as they lag behind other major airlines in Europe, following Air France's tie-up with KLM which made them second to Germany's Lufthansa as the largest European airline by revenue.

    Regulators did see more problems with the oneworld deal and only cleared it after the three airlines made a binding promise to cede valuable take-off and landing slots to rivals to help them start new routes between London and New York, Boston, Dallas-Fort Worth and Miami from next year.

    Some 2.5 million people fly these routes every year.

    The commitment to satisfy the EU requirements will last ten years and the companies can be fined up to 10 percent of yearly global turnover if they don't stick to their commitments. Regulators may review it after five years.

    The three airlines will have to cede slots -- but can demand payment for them -- at New York's John F Kennedy airport and at either London Gatwick or Heathrow only if rivals wanting to start new services to the four U.S. cities can't buy them easily, which is usually the case.

    Slots can cost up to 30 million pounds a pair at Heathrow, one of the world's most congested airports.

    BA says the three daily London-New York slots will only be made available if the number of airlines flying the route falls below "currently announced levels."

    Rival airlines will also be allowed to combine one of their flights with one from the oneworld alliance when selling a return ticket and to get "favorable terms" for connecting flights for BA or Iberia's short-haul flights in Europe.

    This would allow an airline to sell passengers a ticket from Manchester to London on British Airways and then connect them to its own London to New York flight.

    Travelers flying on the new routes would also be able to pick up air miles for frequent flyer programs run by BA, American Airlines or Iberia.

    The EU's executive said the offer was necessary to eliminate antitrust worries that the wider oneworld deal would allow the carriers to control trans-Atlantic routes and hike prices. It said there are now opportunities for new companies to enter the market.

    It blocked similar efforts between BA and American Airlines to share routes in 1998 and 2002.

    EU Competition Commissioner Joaquin Almunia said regulators could now approve the deal because the market has" changed fundamentally" as a result of a recent Open Skies agreement between the EU and the U.S. which has allowed far more airlines to fly between both regions.

    Antitrust agencies on both sides of the Atlantic have long been suspicious about how airline alliances such as oneworld and Star Alliance affect prices for flying between Europe and the United States. The EU is still investigating the Star Alliance run by Lufthansa, Houston-based Continental, United and Air Canada as well as SkyTeam, which combines Air France/KLM and Delta/Northwest.

    AP Business Writer Jane Wardell in London and Associated Press Writer Ciaran Giles in Madrid contributed to this story.