Airline pacts are key says British Airways exec

CHICAGO Thu Jul 16, 2009 8:42pm BST

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CHICAGO (Reuters) - The new alliance between United Airlines UAUA.O and Continental Airlines CAL.N is pressuring rivals to forge partnerships that could result in capacity cuts on crowded international routes, the head of British Airways' U.S. operations said on Thursday.

"In a world where you're not allowed to do full mergers, this is the next best thing," Simon Talling-Smith, executive vice president Americas for British Airways, told Reuters.

British Airways BAY.L, Europe's third-largest carrier by revenue, American Airlines parent AMR Corp AMR.N and Spain's Iberia IBLA.MC have applied for government antitrust immunity to form a trans-atlantic alliance that would permit cooperation on fares, schedules and cost cutting.

Last week, the U.S. Transportation Department approved a similar request by Continental to join UAL Corp's United Airlines in the global Star Alliance. That permission gives Star Alliance members an enormous competitive advantage on some international routes.

"It certainly puts pressure on us to get it done," Talling-Smith said. "That leaves us a little ways behind."

British Airways, AMR and Iberia expect to receive approval from U.S. regulators in October. The plan also needs authorization from European Union officials.

BA and American had an application for antitrust immunity rejected in 2001 due to a shared dominance of the London airport. But a new law allows airlines to access any U.S. city from any point in the European Union and vice versa, meaning previously restricted airlines can now access Heathrow.

"It is our firm belief that the sooner that our application is approved, the quicker it will lead to healthier and more robust competition," AMR said in a July 10 statement.

Airlines which spent years ramping up their international operations, are now being punished for that strategy as demand for overseas travel has plummeted during the economic recession.

To combat this problem, major airlines are slashing capacity and seeking partnerships that enable them to cut costs and capacity. The challenge, however, is to form alliances that do not run afoul of antitrust and foreign ownership laws.

As they cut capacity, the prospect of alliances becomes more appealing to carriers who hope to keep their route structures intact, said DePaul University transportation expert Joe Schwieterman.

"As they look to cut capacity, the value of those alliances goes up exponentially," Schwieterman said.

"It's a dogfight for a diminished traffic base," he said. "Everybody is cutting but wants to maintain schedule strength."

(Reporting by Kyle Peterson; Editing by Tim Dobbyn)

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