British Airways continues to face many problems, of which the collapse of its alliance with American Airlines is one of the most serious. The failure to secure antitrust immunity could also damage BA and AA's Oneworld alliance. Suddenly a merger with KLM looks more promising, even though there are still plenty of obstacles in the way of that partnership.
The proposed alliance between British Airways and American Airlines has collapsed. The airlines viewed the regulatory conditions set by the US Department of Transportation as unrealistic and unnecessary, and ultimately the price was just too high. Unsurprisingly, shareholders are extremely disappointed and it seems that the gray cloud following BA has no plans to leave.
The airline industry is becoming increasingly dominated by global alliances such as Star and Sky Team, which already have US antitrust immunity. In addition, Sky Team has also formed a cargo alliance "Sky Team Cargo", uniquely dedicated to the transport of goods and not passengers. There are fears that the failure to secure immunity with the BA-AA alliance collapse may also lead to the unraveling of BA and AA's Oneworld alliance.
However, the breakdown of the alliances has led to speculation that the Dutch carrier, KLM and BA may renew merger talks. BA, having pulled out of original merger talks with KLM in 2000, says it is still keen on a deal with KLM. Unfortunately, the limits on foreign ownership of airlines that prevented the original merger are still in place.
BA will have to consider its future strategy carefully, as its alliance options are becoming limited. Failure to move forward in an increasingly consolidated industry will leave BA lagging in the world leadership race.
In particular, BA has been facing a lack of demand on short haul routes, created by the competition of low cost airlines. The airline has proposed plans to cut up to 15 of the non-profit routes, focusing on the larger margin transatlantic business routes. But the recent news is a huge blow to progress.