Sun Never Sets on the Routes of British Airways : Airlines: Permission to invest in USAir propels carrier even further ahead of its rivals.
Britannia may no longer rule the waves, but British Airways is claiming the skies.
After winning U.S. government approval this week to invest $300 million in USAir, the London-based airline soared even further ahead of major rivals--including American carriers--in building a worldwide aviation empire.
“There is no doubt that it (the USAir investment) is going to give BA a competitive edge,” transportation consultant Daniel Kasper said.
The deal with USAir allows British Airways to tap into domestic routes within the United States--the world’s single largest airline market--and bolsters its position as the world’s leading international carrier.
British Airways now has partners operating in five nations--Germany, France, Australia, Russia and the United States--that can feed passengers into its huge network of international routes that generate most of the airline’s profit and revenue.
For passengers, the USAir-British Airways alliance makes it easier to travel abroad from many U.S. cities served by USAir.
While the British Airways partnership strategy is not without drawbacks, U.S. airlines such as United, American and Delta may have to reconsider their solo approach to foreign expansion--or risk watching USAir and British Airways pick off their international passengers, industry analysts said.
“U.S. airlines might want to be more active in international takeovers and alliances,” said John Pincavage, a partner in the Transportation Group, a New York-based aviation investment firm.
From London’s Heathrow Airport, where British Airways is headquartered, the airline’s white and navy blue jets fly to more than 150 cities in 71 nations.
Despite moving forward in the United States, British Airways has faced numerous setbacks elsewhere. In an embarrassing episode last month, former Chairman Lord King made two public apologies and paid $5.3 million to settle a libel suit filed by rival Virgin Atlantic Airways. Virgin is now seeking a separate settlement to recover the business it lost as a result of British Airways’ libel and other actions. Virgin said Friday that settlement talks between the two airlines have collapsed.
The U.S. economic slowdown, which has spread to Europe and Japan, has also taken a toll on British Airways’ profit, which has been running below the previous year’s level. However, British Airways has been shielded from the U.S. fare wars and overcapacity that have plagued United, American and Delta, which together lost more than $2 billion last year.
“They have managed to be much more profitable at a time when each of the Big Three have all lost money,” said industry analyst Paul Karos at First Boston. Still, the Big Three remain among the world’s largest and strongest carriers and pose a major threat to British Airways as they expand overseas. On the busy routes between the United States and Britain, where British Airways earns a third of its profit and revenue, U.S. carriers claim about 60% of the passenger traffic.
American, Delta and United--all relative newcomers to the global game--lack the extensive international routes of British Airways. However, the British carrier serves a relatively small domestic British market compared to the domestic U.S. market served by the Big Three. As a result, British Airways has had to find large markets elsewhere to feed traffic into its international routes.
“International traffic is not enough to make a route a success,” said David Hoppin, director of special projects at Global Aviation Associates, a Washington-based consulting firm.
In the United States, British Airways will depend on USAir to pump passengers from 38 cities into international gateways--such as New York and Philadelphia--where British Airways will then complete the trip to London. From London, British Airways can funnel passengers to partners TAT European Airlines in France or Deutsche BA in Germany.
Pursuing international partners has proved more difficult for U.S. carriers, however. For example, most large foreign carriers--such as Air France--are state-owned and not for sale. The few privately owned foreign carriers are often too small to provide many passengers or destinations.
“The opportunity for U.S. carriers to get a foothold in Europe is much smaller,” Karos said.
Delta, Singapore Air and Swiss Air now own 5% of each other’s stock, but their alliance has resulted in little cooperation. American Airlines once owned a small piece of Air New Zealand but later sold its stake. “There is simply not enough traffic there to be of value to us,” said Edward P. Faberman, American’s vice president of government affairs.
Like its U.S. peers, American is counting on the deregulation of international air travel and the opening of foreign markets to avoid having to buy into a foreign carrier. “We think that is the way to go,” Faberman said.
Breaking down those regulatory barriers, however, has been much tougher than expected. “They will be compelled” into international partnerships because of the restrictions they face operating overseas, Hoppin said.
Establishing international partnerships carries its own set of problems and risks. SAS, for example, lost more than $50 million it invested in Continental Airlines when the Houston-based carrier filed for bankruptcy.
British Airways Chairman Colin Marshall will also be spread thin trying to manage his global partners--which largely remain independent and free to do what they wish--while running his backbone international service.
Flying Abroad
Each of the Big Three U.S. airlines fly a vast system of routes at home, but they lag way behind British Airways in serving cities abroad. British Airways will gain access to an additional 38 U.S. cities by sharing flight information with new partner USAir.
*Foreign destinations British Airways: 136 American Airlines: 67 Delta Airlines: 58 United Airlines: 43 Source: Company reports
