BA sees Europe/US 'open skies' agrrement within 18 months


LONDON (XFNews) - Willie Walsh, British Airways PLC's new chief executive, reckons there could be an 'open skies' deal between Europe and the US within 18 months. 

"I still believe we will see a move towards 'open skies' within the next 18 months," he told reporters at the start of his second day as CEO, succeeding the retired Sir Rod Eddington. But he stressed that a prerequisite to ending the complex system of bilateral deals between European Union nations and the US is "a move towards regulatory convergence". 

"You cannot have genuine 'open skies' while the imbalance in rules exist between the EU and the US," he said in reference to US airlines in Chapter 11 bankruptcy protection who are in receipt of substantial government support. "What we're seeing with the industry in the US really is unacceptable with over 50 pct of capacity provided by carriers in Chapter 11," said Walsh. 

An 'open skies' deal would enable BA to acquire other airlines, with Spanish flag carrier Iberia Lineas Aereas de Espana SA a likely eventual merger candidate. BA already owns a 9 pct stake in Iberia, the airlines have a code-share agreement and are partners in the Oneworld alliance.

"The relationship [with Iberia] is a good relationship, I rate the management team at Iberia as the best in the industry," said Walsh.

He said a merger deal with an American airline was out of the question without further regulatory reform in the US but noted AMR Corp's American Airlines continues to be an "excellent partner" of BA within Oneworld. Walsh said consolidation in the industry is inevitable, but stressed BA will only get involved where it is convinced it is in the best interests of the airline and its shareholders.

"It will be consolidation to ensure that BA is bigger, better and a more robust, a stronger more viable airline." 

Turning to the issue of further cuts to BA's 46,000 workforce as the airline chases its target of a further 300 mln stg of employee cost savings by April 2007 ahead of its move to Heathrow Terminal 5 the following year, Walsh declined to give a figure but is hopeful compulsory redundancies can be avoided. 

"We haven't defined a figure at this stage," he said, but he pointed to more visibility when BA's new business plan is set out early next year. "We're looking at moving into a world class facility, we're looking at utilising to its maximum advantage the technology that's available today and likely to be developed between now and then, to ensure that we can have the most efficient operation possible," he explained. 

After three summers of costly disruption at Heathrow, Walsh wants new processes and working practices agreed with the trade unions by the end of next year. Negotiations are ongoing. And despite August's wildcat action by baggage handlers in support of sacked Gate Gourmet staff, which grounded BA flights for two days, costing the airline some 40 mln stg, Walsh is encouraged by his initial dealings with the workforce. 

"A great positive was the attitude of the vast majority who stood up to the unlawful industrial action that took place on August 11 and 12," he said. "What I've seen in the few months that I've been here is the clear determination of almost everybody in BA to do things in a better way." 

The CEO said the airline's holy grail of a 10 pct operating margin is "achievable" but declined to put a timeframe on it. "We've made good progress towards that [target] and I expect to continue to make progress towards it but I don't have a date in my mind as to when we will actually achieve it. We're not going to achieve it in the current year [to end-March 2006]." 

Following a review BA will retain a two class service on short haul flights, Walsh insisted. And he said he did not expect the airline to take delivery of any new aircraft ahead of the T5 move. He also flagged investment of "in excess of" 100 mln stg over the next year in BA's Club World business class cabin, in-flight entertainment and in the ba.com website. 

At 1.11 pm shares in BA were down 1/2 pence at 292-3/4 valuing the business at 3.31 bln stg. The airline will report September traffic figures tomorrow. 

Want More Analysis Like This?

CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find Out More