Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : AKH...the NEW Air France/KLM -- Ignore unavailable to you. Want to Upgrade?

To: paintbrush who wrote (66)	10/23/2007 1:16:29 PM
From: Skywatcher	Read Replies (1) \| Respond to of 72

Open Skies' Transatlantic Boom In what is expected to be the first of many such deals, Delta and Air France are pairing up to offer flights between London and the U.S. by Mark Scott Air travel across the pond is set for a major shake-up. After decades of dominance by European national airlines and a handful of American carriers on lucrative transatlantic routes, the U.S. and the European Union signed the so-called Open Skies Agreement in April to unshackle air travel. Among other things, the agreement will make it possible for, say, a Spanish airline to shuttle passengers from Britain to the U.S., or for American carriers to drop off passengers in one European country, then pick up more and relay them to another destination. Now, at last, the reverberations from the agreement, which takes full effect in March, 2008, are starting to be felt. On Oct. 17, Delta Airlines (DAL) and Air France-KLM (AKH) announced a landmark deal to share costs and revenues on transatlantic routes. Under the agreement, Air France will give three of its slots at London's Heathrow airport—Europe's most important hub to the U.S.—to Delta to use for flights to New York and Atlanta. The French carrier also will start a new service between London and Los Angeles. Probable Partnerships Analysts figure the arrangement could increase the airlines' combined annual revenues by $1.5 billion and boost Delta's annual pretax profit by $125 million to $200 million by 2011. Equally important, it could kick off a wave of similar deals among other airlines looking to cash in on the newly deregulated market. That should increase competition on North Atlantic routes and help pull down ticket prices—though it's too early to estimate by how much. Speculation is rampant over who might team up next. American Airlines (AMR) and British Airways (BAY.L), which have a combined two-thirds share of the flights between the U.S. and Heathrow, already have said they are looking to work more closely together in the future. Meanwhile, Lufthansa (LHAG.DE), Europe's second-largest airline, is interested in scooping up British carrier British Midland (BMI) to take advantage of its Heathrow slots, which Lufthansa could use to fly more North American routes. "The Open Skies Agreement has totally changed the dynamics of the industry," says Clement Wong, travel and tourism manager at research firm Euromonitor International in London. "What's clear is that there will be a new wave of consolidation and joint ventures similar to the deal between Air France and Delta." Ticket Prices Unlikely to Drop Some observers question how much Open Skies will benefit passengers or lower fares. A finite capacity at Europe's major airports will make it hard for new players to compete with incumbents, says Peter Morris, chief economist at London-based airline consultancy Ascend. "We won't see a radical change in cost structures because there's a limited amount of [airport] slots to go around." What's more, ticket prices over the North Atlantic are already pretty aggressive. Peter Morrell, research director at Cranfield University's Air Transport Dept. in Britain, says the treaty's benefits may have been exaggerated because market fundamentals have already pushed prices as low as they can go. "Airports like Heathrow are fairly competitive, so consumers won't see much short-term cost reductions," he says. Plenty of Possibilities That hasn't stopped airlines from weighing their options. Currently, only British Airways, Virgin Atlantic, American Airlines, and United Airlines (UAUA) can operate flights between Heathrow and the U.S. Delta and Air France will be the first to break that deadlock with their announced alliance. Next down the runway could be BMI and Lufthansa. The German incumbent already owns 30% of the British airline (Scandinavia's SAS (SAS.ST) owns another 20%) and both BMI and Lufthansa are already members of the Star Alliance group. More important, BMI has a juicy 12% of the slots at Heathrow, which would open up big opportunities for new transatlantic routes. Although Lufthansa is the favorite to buy BMI, there are other possible scenarios. There are unconfirmed press reports of a $1.5 billion offer from British Airways for BMI. Or BMI could make a bundle by auctioning off some of its slots to the highest bidder. Asian carriers such as Singapore Airlines (SIAL.SI) might be interested in grabbing some of that capacity. The Right Time for an American/British Airways Merger? The opportunity that has generated the most buzz, though, is a potential hookup between American Airlines and British Airways. The companies aren't talking, but their mutual interest extends back many years. They tried to form an alliance that was one step short of a merger in 1996 and again in 2000, but were denied permission both times by U.S. and British competition authorities. Now, with Open Skies in place, the path could be clearer for a prospective deal. Gerard Arpey, chief executive of American parent AMR, touched on the subject during the company's quarterly earnings call on Oct. 17, saying he remained "optimistic" that a linkup between the two carriers now would get the green light from competition authorities. Whether ticket prices plunge from Open Skies deregulation or not, airlines can't escape the impact. By launching their joint venture, Delta and Air France have got the ball rolling on the European airline sector's newest foray into liberalization. Scott is a reporter in BusinessWeek's London bureau .