BA shares rise amid US talks

A potential tie-up between British Airways and two US rivals could lead to the trio co-ordinating schedules, fares and frequent flyer programmes for transatlantic flights, it was reported today.

The mooted three-way agreement with American Airlines and Continental stands a chance of gaining the blessing of competition authorities because of recent takeover moves in the sector, City analysts added.

Shares in BA rose today after it told the City last night that it was “exploring opportunities” for an alliance. It did not provide further details.

BA already works with American Airlines under the One World arrangement - allowing member airlines to extend their route network and share airport facilities – although merger attempts have been blocked in the past due to US rules on foreign ownership of airlines and demands that BA give up some of its valuable Heathrow landing slots.

But Delta’s planned takeover of Northwest Airlines in the US, and the beginning of the “Open Skies” agreement easing restrictions on air travel between the EU and the US – putting BA’s Heathrow slots open to fierce competition – has prompted the manoeuvring.

An expanded agreement to include Continental could lead to the trio applying for antitrust immunity for the transatlantic tie-up from US and European competition authorities.

Panmure Gordon analyst Gert Zonneveld said: “BA’s efforts in the past to apply for antitrust immunity with America have failed because the regulatory price for such an agreement, in terms of giving up slots, was too high.

“With open skies in place, and with airline consolidation underway in the US following the deal between Delta and Northwest, antitrust immunity may now be possible.”

Talk of the tie-up gave some rare good news to investors in a sector hit by soaring oil costs. British Airways shares gained more than 3%, making it one of the FTSE 100 Index’s strongest risers.

British Airways is expecting its annual fuel bill to increase by a fifth to £2.5bn (€3.2bn) in the next financial year as oil remains above US$100 (€64.42) a barrel.

Fears over the profitability of the business in the tougher climate, the impact of Open Skies – and more recently the disastrous opening of Heathrow’s Terminal 5 – has seen the company’s shares plunge to just over a third of last year’s highs near 600p.