CODE sharing agreements have become commonplace in civil aviation, but the proposed alliance between British Airways (BA) and American Airlines - two of the world's giants - has left some smaller rivals angry and worried about the competitive challenge.
The alliance between BA and American announced earlier this month will create a powerful force. Together they control 60 per cent of flights between Britain and the US, 70 per cent of traffic between London and New York, 90 per cent between London and Chicago and all flights between London and Dallas.
"These are two dominant airlines who would together command an enormous share of the transatlantic market," says Mr Richard Branson, chairman of Virgin Atlantic, the independent British carrier. "It's hard to believe any rational government, acting in the interests of the consumer, would allow this to happen.
The link up, if its successful will also mean greater competition for Aer Lingus on trans Atlantic routes, as travellers may find the BA/American Airlines service through London increasingly attractive, especially if when the two airlines combine their air miles programmes.
For all their power, BA and American concluded their deal as a way of defending themselves against forces in the aviation industry they could no longer control.
Rival airlines in both the US and Europe have been busily concluding similar alliances, while their governments have been signing liberal "open skies" agreements which allow airlines from one country to fly freely to any point in the other.
For years, BA has resisted the tide of liberalisation which threatened its position at London's Heathrow, where it holds 38 per cent of take off and landing slots. It has fiercely opposed the scrapping of Bermuda II, the UK US aviation agreement concluded in 1977. The agreement lays down details of which airlines can flu between specified US and British cities, the number of flights they can operate and, in some cases, even the type of aircraft they can use.
Mr Gerald Greenwald, chairman of United Airlines of the US has called the agreement "the worst mistake in the history of US international aviation relations" because of the restrictions it places on US carriers' ability to use Heathrow airport and to fly to third countries.
As little as three months ago, Mr Robert Ayling, BA's chief executive, disagreed. Bermuda II, he said, was "a model agreement". He also attacked the recently strengthened alliance between United and Lufthansa and their application to the US authorities for anti trust immunity allowing them to work together more closely.
American has some equally embarrassing positions to justify. It has fought against the trend towards code sharing agreements, under which an airline sells seats on another carrier's flights. This allows airlines to put their two letter flight codes on flights operated by another airline and thus to sell tickets on routes they do not serve.
Its chairman, Mr Robert Crandall, has been particularly critical. "We think code sharing is inappropriate because it is based on misleading consumers into believing they are buying one thing while selling them another," he told the American Chamber of Commerce in London last year. "Code sharing is profoundly anti competitive," he added.
Both BA and American have had to retreat. BA has indicated it is now in favour of "open skies" and American has entered the biggest code sharing alliance ever. So many rival airlines have concluded transatlantic code sharing deals bat American was in danger of being left out.
Among the alliances formed in recent years are those between Northwest Airlines of the US and KLM of the Netherlands, and between Delta and Swissair, Sabena of Belgium and Austrian Airlines. Delta also has a code sharing agreement with Virgin, and recently concluded a deal with Aer Lingus.
BA already had a US partner in USAir, in which it has a 24.6 per cent stake. The British airline said the link with USAir brought it benefits of £130 million sterling last year in additional traffic. But USAir has financial and labour problems and the US government has not granted the anti trust immunity to BA and USAir which would have allowed them to co ordinate their operations more closely.
BA was clearly in the market for an additional US partner and American - in a far healthier financial condition - was available.
To conclude the deal, however, BA had to drop its opposition to a UK-US open skies agreement. The US said anti trust immunity would be granted only to airlines from countries which had concluded open skies agreements.
BA and American have said they would ask for anti trust immunity and called on the British and US governments to negotiate a new, liberalised aviation agreement to replace Bermuda II. If BA is prepared to see Heathrow opened to competition and US airlines allowed to fly to third countries from the UK, as it says it is, the alliance with American is likely to be approved.
The introduction of an open skies policy for Britain could also impact on Aer Lingus transatlantic business as the arrival of new carriers could force prices down.
How effective the alliance will be depends on the extent to which the two airlines can, in Mr Crandall's words, mislead consumers and persuade them that they are flying on one airline rather than two.
The two airlines plan to change their schedules to ensure that customers changing from one airline to another can do so conveniently.
