Easing Shannon knot key to Aer Lingus hopes

If anyone offers you decent odds, it would be worth placing a few pounds on American Airlines as the strategic alliance partner likely to emerge for Aer Lingus. However the marriage will only make sense if the current restriction on transatlantic flights - which broadly obliges carriers to match flights from Dublin with those from Shannon - is dropped. If it isn't, the entire strategy on which the Irish airline's plans for an alliance are based will collapse.

The thinking that puts American Airlines as favourite goes as follows. Those familiar with the airline business are in no doubt that Aer Lingus needs to join up with one of the two major international alliances. These are the new One World alliance, led by British Airways and American and including Cathay Pacific, Qantas and others, and the Star alliance - led by Lufthansa and United Airlines.

Of the two alliances, One World appears the more logical match for Aer Lingus. It includes a major US airline with extensive flights from Kennedy and Chicago, two of the three airports into which Aer Lingus flies; the major British player which operates from Heathrow; and other airlines such as Qantas, Canadian and Cathay Pacific of Hong Kong which link the alliance in with flights to almost anywhere in the world. Aer Lingus could slot into such an alliance, serving the transatlantic market to Ireland, as well as providing passengers for onward travel through the American Airlines network throughout the US. And its landing slots at Heathrow may prove attractive, as BA and American may be forced to give up some of their slots to gain regulatory clearance for the alliance.

The reason Aer Lingus wants its primary link with a US airline rather than with the likes of BA or Lufthansa is simple. It is that the airline makes much more money from long-haul flights, which are not subject to price competition to the same extent as the short-haul routes to Britain and which do not carry the same costs which the frequent take-offs and landings of shorter-haul routes bring with them.

Having its primary alliance with a US airline puts the emphasis on developing long-haul traffic. By feeding traffic into the routes of a major US carrier and taking its traffic to ferry onward to Ireland, it hopes it can develop its long-haul business, increasing the load on its planes, opening up extra services and making flights to new locations such as Los Angeles more viable. American Airlines might be interested in such a proposition, although it remains to be seen whether they would take an equity stake, as Aer Lingus would wish.

And so to Shannon. There has been a lot of focus on the US regulatory authorities and how they will insist that any US airline only enters an alliance with a partner from a country operating a completed liberalised sector - the so-called Open Skies policy. But this is not the only reason why the Government will have to consider Shannon's future. If the current restriction remains in place, Aer Lingus will not be able to increase flights to the US from Dublin, without increasing by the same amount from Shannon. This will clearly limit its ability to increase its long-haul traffic as part of an alliance strategy and secure its financial future. The Shannon restriction must go, or we may end up in the next downturn with a national airline facing further financial turbulence.