British Airways, American and Iberia agree joint business
Venture is worth a combined $7 billion in annual revenues
Sept. 29, 2010, 4:24 a.m.

MADRID (MarketWatch) — British Airways said Wednesday it has inked a transatlantic joint venture with American Airlines and Iberia that is worth a combined $7 billion in annual revenues.

The revenue-sharing deal will allow British Airways, American Airlines, owned by AMR Corp. and Spain’s Iberia to cooperate on flights between the European Union, Switzerland, Norway, the U.S., Mexico and Canada.

No matter which airline takes the booking, all companies will benefit under the terms of the deal, already agreed by regulatory authorities in the European Union and the U.S.

The joint business will launch in October and will also enable the airlines’ One World alliance to “compete on an equal footing” with other global alliances that have been allowed to operate similar businesses for years, British Airways said in a statement.

The airline also said the business will allow customers better access to cheaper fares and more convenient connections.

Shares of British Airways fell 0.4% in London and shares of Iberia dropped 0.5% in Madrid, tracking a broad retreat in European stocks.

A merger is already in the works between Iberia and British Airways, but it still needs to be approved by shareholders at the Spanish airline, which could take place in November.

Meanwhile, operations at British Airways were disrupted this spring by Iceland’s volcanic-ash cloud as well as strikes by cabin crew protesting pay and work conditions. Unite, the union representing the cabin crew, has threatened further strike action, according to media reports.

Stephen Pope, managing editor of Spotlight Ideas, said the deal announced Wednesday has to be seen as “good news” for the three airlines given the benefits of passenger traffic and reduced costs.

“The flag carriers such as BA and IB have to find ways to reduce costs, as the impact of the budget carriers and the recent strikes BA faced have severely dented the bottom line and caused worrying margin compression,” Pope said in emailed comments.

“Of course there will be detractors, e.g. Virgin Atlantic, as they see it creating a monopoly,” he said. “However, the deal was approved in the summer and is this relationship so different from structures of cooperation such as ‘One World’ or ‘Star Alliance’?”

Barbara Kollmeyer is an editor for MarketWatch in Madrid.