BA alliance talks may augur consolidation
LONDON—British Airways PLC shares jumped more than 7 percent on Thursday amid speculation about what kind of deal it might ink with American Airlines and Continental Airlines Inc. and the possibility of wider consolidation among European major carriers.
BA announced late Wednesday that it was "exploring opportunities for cooperation" with the two U.S. airlines, leading to suggestions that it would extend its oneworld alliance with American Airlines to include Continental.
Analysts said the expanded alliance also could seek exemption from antitrust provisions that bar setting prices and schedules together.
U.S. airlines have been scrambling to combine or form new alliances since Delta Air Lines Inc. announced plans to purchase Northwest Airlines Corp. earlier this month, and analysts said the consolidation push could now spread further afield.
"Consolidation moves in the U.S. could precipitate a scramble for talks amongst the European majors," said Collins Stewart analyst Andrew Fitchie. "We believe BA's position at Heathrow will make it a sought after partner and provide leverage in any situation."
The British carrier's shares closed 7.5 percent higher at 243.5 pence ($4.80) on the London Stock Exchange. On news of lower oil prices, shares of AMR rose $1.13, or 12.9 percent, to $9.90, and Continental shares gained $1.27, or 7.1 percent, to $19.25, on the New York Stock Exchange.
The three carriers have declined to elaborate further on the talks.
Virgin Atlantic, which competes with the three on trans-Atlantic flights, attacked a possible deal as anti-consumer.
Virgin President Sir Richard Branson said on Wednesday that regulators had rebuffed earlier alliance proposals between BA and American. Adding Continental to the deal, he said, was a "triple whammy" that would reduce competition across the Atlantic.
As an added wrinkle, Virgin Atlantic has a so-called code-share agreement with Continental under which the carriers sell seats on each other's flights and offer reciprocal frequent-flier miles.
If Continental strikes a deal with BA, "Continental would probably break off that code-sharing," said Frank Werner, a finance professor at Fordham University and aviation consultant. "So BA would be luring Continental away from Virgin Atlantic, its rival."
Continental said over the weekend that it would not pursue a combination with another carrier right away, a surprising move after weeks of growing speculation that it would join with United Airlines to create the world's biggest airline.
UAL Corp.-owned United and US Airways Group Inc. are now in advanced talks on joining their businesses to create what could be the world's largest carrier.
With U.S. law prohibiting combinations with foreign airlines, analysts said that attaining antitrust immunity would be at the top of the list of the trio's talks. "Antitrust immunity would create significant revenue and cost benefits and strengthen the product offering," Panmure Gordon brokerage said in a note.
BA and American, a unit of AMR Corp., have failed in the past to win an exemption from U.S. antitrust laws to work more closely together because of their dominance at London's Heathrow, where the pair have more than half the capacity to and from the United States.
BA Chief Executive Officer Willie Walsh has balked at proposals from regulators that they would provide antitrust immunity in return for the carrier surrendering some valuable takeoff and landing slots at Heathrow, Europe's busiest airport.
"The relationship that we have with American Airlines is very positive, but we have not pursued antitrust immunity with American because the price associated with that is too high," Walsh said at an investor day last month.
Takeoff and landing slots at the airport are sold for as much as 30 million pounds ($60 million) a pair.
The "open skies" agreement that took effect in March, which allows more airlines to serve Heathrow if they can find slots, could potentially ease regulatory objections to a new BA-American agreement.
Mike Boyd, an airline consultant based in Colorado, said a BA-American-Continental alliance would bring in incremental revenue but "not change the world for any of the carriers."
"Such an alliance would have no downsides, even if it involves some capacity-sharing" across the Atlantic, Boyd said. But he said it would not lead to direct flights from London to secondary American cities.
Fitchie said that an antitrust immunity deal could be worth 20 pence (40 cents) to 40 pence (80 cents) a share for BA, but he added that the talks are in the very early stages and even if the trio agree to a deal any subsequent regulatory considerations would be lengthy.
"It's clearly too soon, with the situation too preliminary, to assess any sensible valuation impact of the announcement. It is entirely possible that the discussions will be fruitless," he said. "History tells you that even if talks were to progress beyond the current stage, the regulatory negotiations would be protracted and there would be an immense amount of noise generated by competitors and unions in an attempt to scupper any deal."
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AP Business Writer David Koenig in Dallas contributed to this report.
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