Small-minded global village attitudes ground BA/AA deal

Two developing stories of the past week have served to show just how true it is that we live in a global village. Like any village, the globe operates on seething mistrust and petty jealousies, insular attitudes and grubby affairs, pious rectitude and bitter little enmities. In short, the globe is every bit as nasty as village life.

The two stories involve the US regulatory authorities, which have contributed the term anti-trust to the language, which could stand as the watchword of small-minded, provincial village life.

You can see this uptight, curtain-twitching tone in the first of the two stories, which involves “The World’s Favourite Airline” – except in America – BA, and American Airlines. These two wanted to form the world’s most powerful airline alliance and there may well be worrying competition issues that need to examined before allowing such a hitch-up.

Richard Branson’s brave, young Virgin clearly thought so, writing “No way BA/AA” on its airliners’ fuselages, which must win the prize for the worst catchline of the decade. Virgin would see the alliance as less of a hitch-up than a stitch-up, forcing prices down to put the competition out of business and then up to rip off passengers. We’ve been here before with Sir Freddie Laker.

There may be validity in that argument. It is one that competition authorities should rightly address. On the other hand, it could be that whingeing Luddites in the industry are standing in the way of the natural development of global airlines that will deliver improved services and prices.

We may never know, because the parochial anti-trust council in Washington has wrung its hands and dragged its feet for so long that a resolution to this proposal is now about as likely as the village fête being held in January. And would that the delay was just about inefficiency, but true to village mentality, the delay is really about selfish, self-serving little local agendas.

Washington, we must now conclude, has no real interest in whether an alliance between BA and AA serves public interests on either side of the Atlantic, but rather whether it can use the deal to leverage an “open skies” agreement with Britain. Under the terms of Bermuda II, a bilateral aviation agreement, AA and United Airlines are the only American carriers that may fly into Heathrow. For Washington, abolition of Bermuda II is the price of the BA/AA deal.

This is not to exonerate the British Government for what may be a restrictive practice at Heathrow. But that issue no longer has anything to do with the relative competitive merits of a partnership between BA and AA and everything to do with an intergovernmental haggle over landing rights. It could be that the anti-trust brigade will make a case that the issues are inseparable, but actually the Washington authorities have no interest in the BA/AA deal beyond whether they can use it to wring out more landing slots from Heathrow.

We know this because BA and AA have more or less given up on striking the deal that they originally envisaged. BA has scaled down its plans so that the proposal amounts to little more than co-ordination systems for fares and flight schedules. This is called code-sharing. But Washington makes it clear that code-sharing won’t be allowed without an open-skies policy. In other words, it’s open skies or nothing – the US isn’t inspecting BA/AA on its merits, it’s using it as a bargaining counter.

That’s what the BA/AA business is about and don’t let anyone tell you otherwise. But I said there were two stories that shed light on the true nature of the anti-trust authorities. The other is the treatment of Microsoft. For all I know, Bill Gates is a modern-day mafioso and the anti-trust people are playing the role of the tax inspectors that brought Al Capone to justice.

But it doesn’t seem very likely. Far more likely is that Washington is indulging its instinct for self-important busy-bodying of little consequence to the way the real world operates.

So what did we learn last week of the horrors of doing business with Microsoft? Internet software pioneer Netscape told a federal court investigation that “mostly [Microsoft] wanted us to work with them to add value to their products and our products”. When Netscape didn’t play, Microsoft drew attention to the competitive clout that it could bring to bear. Netscape claims this was unfair.

Who cares? Certainly not investors – Microsoft’s shares rose more than ten per cent last week, on the back of first-quarter earnings up by 58 per cent. There may be serious issues to address with regard to Microsoft’s domination of its market, but you can be sure that the Washington anti-trust crowd, with its small-town attitudes, won’t get near them.

Meanwhile, BA’s shares are close to their year’s low of 304p and could do without Washington’s political in-fighting. Perhaps the US would benefit from competition policy on the British model, where BSkyB’s bid for Manchester United is cleared because Rupert Murdoch owns a lot of newspapers.

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