United/British Midland Proposal Along With British Airways/American Airlines Deal Dooms Competition to the U.K.

Continental Airlines, Delta Air Lines and Northwest Airlines (Nasdaq: NWAC) said yesterday that the proposed antitrust immunity combination of United Airlines with British Midland Airways, along with the pending British Airways and American Airlines combination, would permanently destroy competition at London's Heathrow airport and must be rejected by U.S., U.K., and European Union regulators.

The U.K. is the largest and most important U.S.-Europe passenger market and is larger than the combined total of the U.S. to Germany, U.S. to France and U.S. to Netherlands passenger markets.

The carriers said, if approved in the present form, the four carriers (American Airlines, British Airways, British Midland Airways and United Airlines) would control a staggering 83 percent of the departures between the U.S. and London Heathrow, which would eliminate meaningful competition and raise fares for U.S.-London travelers. The combinations would reduce or eliminate schedule and fare choices for more than 7 million passengers or 65 percent of the more than 11 million passengers traveling from the U.S. to London - Heathrow.

"The British Airways/American and United/British Midland transactions are poison for competition," said Continental Chairman and CEO Gordon Bethune. "Allowing these dominant participants to operate as single entities would effectively preclude any real competition on most U.S. - U.K. services."

The British Airways/American Airlines combination, the largest U.S./European airline alliance ever proposed, would affect far more passengers than previous airline agreements and would create unprecedented market dominance. Now, average fares between the U.S. and London markets are 30 percent higher at London Heathrow than at London Gatwick, which is not a reasonable substitute for London Heathrow, the preferred airport by most consumers traveling to or from London.

No U.S. airline voluntarily serves London Gatwick, and other European gateways are not viable alternatives for London passengers.

"British Airways/American Airlines and United/British Midland, along with their other partners, will stifle competition by controlling the vast majority of take-off and landing slots at London Heathrow. There will be no opportunity for Continental, Delta, Northwest or any other viable competitor to secure Heathrow slots or facilities from their European alliance partners, which have an inconsequential number of slots," Delta Chairman and CEO Leo Mullin added.

The two alliances would have strong dominance of Heathrow, with 80 percent of the frequencies from 8 of 11 U.S. gateways to Heathrow. U.S. travelers would have fewer choices and pay higher fares if the two deals are approved, without provisions for other U.S. carriers to offer competitive service.

The three carriers also warned U.S. policy makers against the presumption that an open skies agreement with the United Kingdom guarantees competition at Heathrow. They noted that, absent specific balancing measures, British Airways' stranglehold on Heathrow's limited capacity would enable it to maintain and enhance its dominant position even in an open skies environment. In fact, an open skies arrangement that lacks specific guarantees for opening Heathrow to competition would cement British Airways' status as the dominant player in this market.

"Without an open Heathrow, open skies will exist in name only," Northwest CEO Richard Anderson said. "There cannot be market based competition if new entrants cannot obtain slots, gates and other essential facilities to offer viable competitive service. In fact, additional facilities at Heathrow will not be available until at least 2007 with the opening of Terminal 5.

"U.S. regulators must not link approval of the British Airways - American and the United - British Midland combination to an open skies agreement. Rather, they must insist on an open skies pact that ensures competition by immediately opening Heathrow to service by new entrants," Continental's Bethune added.

The carriers noted that British Airways by itself controls over 358 Heathrow to U.S. weekly landing and take-off slots, while American Airlines has about 224 slots, which would give the combination almost 600 weekly slots -- 63 percent of the total. At this point, United has about 211 slots. Continental, Delta, and Northwest have none.

"In order to assure competition to this market, U.S. regulators would need a massive reallocation of commercially-viable slots and terminal facilities to other major competitors," Delta's Mullin said.

"This allocation of slots to other carriers would be the only solution to creating a climate where the U.S. to U.K. customer has an opportunity to choose a competitive fare and a schedule that fits their individual travel needs," Mullin added.