British Airways will control nearly 40% of slots at Gatwick after the Government gave the go-ahead for the £75m acquisition of franchise partner Cityflyer.
Secretary of state for trade and industry Stephen Byers has conditionally agreed to the deal provided BA, its franchise airlines and subsidiaries are capped on the number of hourly slots they can use.
The Competition Commission and the director-general of fair trading John Bridgeman are to decide whether BAcan use 65%-70% of the hourly slots available.
However, Cityflyer managing director Brad Burgess said BA and partners already work within a 70% limit and could meet a reduced figure by rescheduling some flights. "We are pretty pleased with the decision and now need to get the cap to work. We are confident we can agree this," he said.
Byers refused to cap BA and its partners on the overall number of slots they hold at Gatwick. BA and Cityflyer combined will have 39% of slots. This rises to 41% when slots held by other BA partners, including Brymon Airways, are taken into account.
Byers has given Bridgeman until the end of next month to agree the hourly cap with BA and other interested parties, with a warning that this must be met by November 8 or he could prohibit the merger.
The announcement to conditionally give the go-ahead to BA's acquisition of Cityflyer means Virgin Atlantic's counter bid of £75m has been blocked.
Virgin said it was disappointed, but welcomed the statement that the merger was against the public interest if restrictions were not imposed.
Chairman Richard Branson said:"The conclusion of the consultation on slot capping at Gatwick must allow for the creation of real second force airlines in the UK to challenge BA's dominance. The next few months will be a test of whether this Government truly believes in competition."
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