IAG-American alliance 'could lead to merger'

IAG-American alliance 'could lead to merger'

The head of American Airlines has raised the prospect of a full-blown merger with British Airways-Iberia parent International Airlines Group.

The US carrier’s president Tom Horton believes the two groups could extend their existing alliance if the limits on foreign ownership of airlines in America were relaxed - a move he says he expects to see 'within my lifetime'.

Currently foreign ownership in US domestic carriers is restricted to 25%, although Washington is under pressure from the European Union to relax these rules.

IAG won regulatory permission to form a transatlantic alliance with American Airlines last year. The $7 billion-a-year joint venture allows them to co-operate on schedules, sell each other's flights and share revenues from transatlantic operations.

Horton reportedly said: “This alliance agreement with BA and IAG is effectively a synthetic merger. Over time - I think in my working lifetime - foreign ownership rules in the US will become more flexible. This alliance could form the basis of a cross-border merger between our airlines.”

If AA and IAG were to be combined, the resulting entity would carry about 163 million passengers a year, overtaking Delta-Continental with 162 million.

In the meantime, Horton said that American and IAG were working on plans to develop their existing alliance. They have already co-ordinated schedules so that AA and BA do not have flights leaving at the same time.

That has allowed them to create a shuttle service between Heathrow and New York, with flights leaving every 30 minutes to 60 minutes during the evening.

The partners are also considering how to price their products to offer passengers as many options as possible. BA's business class is widely regarded as superior to AA's and this creates the option to have a premium-priced business class and a cheaper option.

Horton said: “The alliance with BA is a huge deal and is really just now getting traction. We are looking at putting as much product on the shelves as we can. In BA's business class, the beds are fully flat and selling that at a different price to our business class is under discussion.”

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