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In granting permission for the tie-up between British Airways, Iberia and American Airlines, Europe's competition watchdog recognised the challenges of soaring fuel costs and falling demand.

The merger of British Airways and Spain’s Iberia creates one of the world's biggest airlines in the fast-consolidating aviation market. It will be Europe's second-biggest airline by value after Lufthansa and will combine Iberia's strong position in Latin America with BA's presence in Africa, Asia and North America.

European competition commissioner Joaquin Almunia said "Today's reality is one of increased consolidation." He concluded that BA/Iberia would face sufficient competition from other carriers between London and Spain as well as on long-haul flights. Accordingly, the transaction would not significantly impede effective competition.

In a separate decision, the commission cleared the way for a trans-Atlantic joint venture between British Airways, Iberia and American Airlines despite concerns that the alliance could harm consumers on trans-Atlantic routes.

As the airlines had offered a 10-year commitment to free up Heathrow landing and take-off slots to facilitate competition between London and New York, Boston, Dallas and Miami, the commission made a pragmatic decision that these were "suitable" remedies.

Given European Commission approval, BA are confident that the US Department of Transportation will grant anti-trust immunity.

If the alliances that BA are creating fall short of full-blown mergers or takeovers, this is a technical step to avoid some of the difficulties with national bodies imposing limits on foreign ownership and favouring the national carrier to protect their domestic markets.

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