BA in 2001 January 2001

If the feared recession in the US spreads to the UK economy, an acceleration of BA’s intra–European downsizing strategy can be expected. Firstly, a deterioration in economic conditions generally makes travellers more price–sensitive and hence more likely to switch to the low–cost competition.

Secondly, because the UK economy is out of sync with the main continental economies, Air France and Lufthansa may well be able to continue their rapid traffic growth in the process keeping their unit costs well under control and further eroding BA’s once dominant position.

The most visible sign of BA’s European downsizing strategy is its decision to sell off Go. BA is unlikely to dispose of the airline to a major rival so KLM/Buzz would probably be ruled out. Ryanair, the main low–cost carrier at Go’s Stansted base, has stated that it isn’t interested. That leaves in terms of airlines BA’s oneworld partner Iberia. Iberia’s interest in Go is twofold. It sees a Go purchase as a possible means of controlling low–cost scheduled competition to Spain (Go has won important market shares on routes to Spain’s secondary points). There is also the possibility of integrating Go with its other potential purchase, Air Europa. The commercial logic behind Iberia’s interest is, it must be admitted, a little strained.

2001 will certainly see a re–concentration on developing coherent long haul alliance strategies with Qantas and American. A relaunch of oneworld is a distinct possibility. But this time round BA and American will have properly prepared the ground by pre–negotiations on the regulatory implications of its alliance structures with all the relevant government bodies.