BA: Musings on mergers, marriages, partnerships and takeovers

BA announces a new partnership with American Airways and Iberia. It raises the old question of the nature of business alliances

BA has cooperated for some time with American Airlines. Any joint venture seems likely to tick one important box, namely that the partners seem comfortable with one another. So there is at least the possibility that the cultural chemistry is not going to be a problem.

That is not to say that cross-cultural issues can be safely ignored, just that many of them have been thoroughly tested in practice over a period of two decades by the two airlines.

Even so, a global alliance presents global problems (or challenges as the remorselessly upbeat business speak encourages us to say). Business Schools prepare the new case for analysis. This one has another layer of complication. The deal is the more complex by the presence of Iberia. Hard enough to get a grip of a bi-party deal.

Oneworld

Where to begin? American Airways places considerable emphasis on its role as partner (and co-founder) of the global oneworld® Alliance,

…which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members serve more than 600 destinations in over 135 countries and territories.

Such alliances have increasingly and rather unobtrusively making air travel a little more joined up Less frequent fliers like myself increasingly find themselves going with the flow and discovering that the short-haul or regional leg of their journeys is being managed on behalf of a larger and more familiar name.

The alliances fit with the messier business world in which cooperation and competition co-exist. Incidentally, it is a world which poses further ‘challenges’ for traditional arguements regarding the ultimate economic virtues of competitive markets. It will be interesting to read the take on all this from that intelligent newspaper The Economist.

According to OneWorld

The oneworld global airline alliance has warmly welcomed and strongly supports the application for anti-trust immunity filed on August 14 by its members American Airlines, British Airways, Finnair, Iberia and Royal Jordanian. .. The filing was made as American Airlines, British Airways and Iberia signed a joint business agreement covering their flights between North America and Europe and unveiled plans for further co-operation.

John McCulloch [oneworld spokesman] said: “oneworld has for many years been the only global alliance without the benefit of anti-trust immunity between its key transatlantic partners. This has put oneworld at a considerable disadvantage. We’ve had to work a great deal harder and smarter than our competitors [Our rival alliances SkyTeam and Star] have grown much bigger and the anti-trust immunity they enjoy has been extended far more widely to deliver the alliance services and benefits that our customers have come to appreciate so much.

Richard Branson’s response

Richard Branson leading from the front for Virgin, enters the fray with a typically high-profile response.

Sir Richard Branson went on the attack yesterday against his old adversary British Airways to try to block plans by the UK flag-carrier to join forces with American Airlines and Spain’s Iberia across the North Atlantic. The three carriers, all members of the Oneworld global airline alliance, said they had signed a “joint business agreement” covering flights between North America and Europe.
They intended to co-operate commercially on flights between the US, Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities. They would share revenues but not profits.
Sir Richard, president of Virgin Atlantic, said a BA tie-up with AA would “create a monster monopoly that would push up ticket prices and substantially reduce competition on the busiest air corridor in the world”.
But other opponents to closer ties between the two airlines, such as Continental Airlines, are likely to tone down their lobbying efforts, as they await regulatory approval for their own proposed partnerships.
BA and Iberia have recently begun negotiations to merge.
It is the third attempt by BA and AA in 11 years to gain antitrust immunity for their alliance. Heathrow, BA’s global hub and the Europe gateway for travellers from the US, had been opened to full competition for EU and US carriers since the end of March [2008].

This is the way in which Virgin Atlantic has developed such a positive brand identity and reputation.

‘This is not a marriage’

Stephen Beard argues in Marketplace that this is not a marriage.

At a time of crisis in the airline industry, [BA and Iberia] want to huddle closer together. They want to cut costs, coordinating flights and fares, perhaps running a joint frequent flyer program. The two airlines feel at a disadvantage. Lufthansa and Air France both operate very closely with U.S. carriers. BA and American need to be allowed to do the same .. American have tried this before, but failed to win the support of regulators. This time, they believe they’ll succeed, because the Open Skies Agreement has opened up competition in transatlantic air travel.

What happens next?

Some more turbulence of shareprices. Further informal collaboration between the one world partners. Maybe a full- blooded merger between BA and Iberia. (My blink view is rather cold on this one. But whatever happens, I would not rely on a two-second judgment, if I were into BA speculation). Even more Business School attention on the nature of global alliances. Richard Branson in need of more strategic initiatives to protect the future of Virgin Airlines. We will hear a lot more over the next few months [August 2008].

Note: For a full account of Richard Branson’s statement see The Wall Street Journal

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